Open Offer

Open Offer — Definition and Overview

An open offer is a type of secondary-market share offering in which a company gives its existing shareholders the opportunity to buy additional shares directly from the company at a price typically below the prevailing market price. The offer is made in proportion to each shareholder’s existing holdings so that shareholders can maintain their relative ownership.

Companies use open offers to raise cash efficiently while giving current shareholders the first chance to participate.

How an Open Offer Works

• The company announces a fixed subscription period (commonly 16–30 days) during which eligible shareholders can subscribe for additional shares.
• The subscription price is usually set below the current market price.
• Rights to buy shares in an open offer are generally non-transferable — shareholders cannot sell these rights to third parties.
• Shareholders who do not exercise their entitlement may see their ownership diluted if others subscribe.
• The issuer provides required documentation to shareholders, collects exercise forms and payment, and files necessary regulatory and exchange paperwork.

If the offering is relatively small (often cited as less than about 20% of total shares outstanding), shareholder approval may not be required because existing holders are given the opportunity to maintain their proportional ownership.

Open Offer vs. Rights Issue

Similarities:
* Both let existing shareholders purchase new shares in proportion to current holdings.
* Both are offered for a limited time.
* Both commonly price the subscription below market value.

Key differences:
* Transferability — In a traditional rights issue, the rights are often transferable and can be sold on the market; in an open offer, the rights are typically non-transferable.
* Market trading — Transferable rights are usually listed and traded on the same exchange as the shares; open-offer entitlements are not tradable.
* Administrative and legal mechanics can differ by jurisdiction and by whether the offering is structured as a formal rights issue.

Advantages and Disadvantages

Advantages for the company:
* Raises capital quickly and directly.
* Gives existing shareholders the chance to avoid dilution of their ownership.
* Can be simpler to execute than broader public offerings.

Advantages for shareholders:
* Opportunity to buy at a discount.
* Ability to preserve proportional ownership if they participate.

Disadvantages and risks:
* Perception — a secondary offering can be interpreted as a sign the company needs cash, which some investors view negatively.
* Potential dilution for non-participating shareholders.
* If the market believes the company’s stock is overvalued, the offer may be seen as a poor signal.

Practical Points

• Timeframe: No federal rule fixes the subscription period; common practice is 16–30 days.
• Documentation and filings: Issuer must supply formal offering documents, collect exercise certificates and payment, and comply with applicable securities filings.
• Local rules: Specific requirements and thresholds (e.g., when shareholder approval is needed) vary by jurisdiction and exchange.

Key Takeaways

• An open offer lets current shareholders buy additional shares at a discounted subscription price and is usually non-transferable.
• It can limit dilution for participating shareholders but may still dilute non-participants.
• Open offers are similar to rights issues in purpose and timing, but differ mainly in the transferability of the subscription rights and some procedural details.
• Investors should consider the reasons for the offer, the subscription price relative to market value, and their ability or desire to maintain ownership proportion before participating.