Comments on: Section 382 Rights Offerings

By: Detached?

Detached? — Fri, 31 Jul 2009 00:35:18 +0000

“[T]he Rights will be attached to all Common Stock . . . and no separate Rights Certificates will be distributed. [T]he Rights will separate from the Common Stock and a Distribution Date will occur upon the earlier of . . . “

By: Cogitator

Cogitator — Tue, 21 Jul 2009 06:18:59 +0000

I haven’t studied this type of situation for very long, and I don’t know whether any “Section 382″ rights have been triggered. There tend to be stipulations in the terms that make them a bit more attractive than I have stated here. But, yes, most of the rights will probably end up being worthless.

By: Jim

Jim — Fri, 17 Jul 2009 00:00:21 +0000

So for Toll, you buy common for, say, $17.15. Then you need to sell a near-term, deep in-the-money call. Say the September 2009 $10 call, which if you sell at the bid gives you a premium of $7.10. You receive the rights. Sometime before the expiry date on the call, your stock is called away at $10. So you paid a nickel, plus trading costs, to get the right. Not bad.

One of the issues of course is that the very existence of this kind of poison pill makes it unlikely that an outside investor will ever go over the 4.95% threshold and trigger the rights. Which makes it very unlikely they’ll ever be worth anything.

Have you found any examples where rights were triggered?