In the example the shareholder will keep all his 100,000 shares and receive a cash payment of EUR 35,000 while the nominal value of the shares remains the same and the market value of the shares drops from EUR 5.00 to EUR 4.65.
Total value before the exdate of the event: 100,000 x EUR 5.00 = EUR 500,000
Total value after the exdate of the event: 100,000 x EUR 4.65 = EUR 465,000 (+ EUR 35,000 in cash). ...more cash dividend...
In the example the sharehoder will receive 100,000 rights based on his holdings of 100,000 shares. With those 100,000 rights he is entitled to buy an additional 10,000 new shares at a subscription price of EUR 4 per share.
Value of his holdings before the rights issue: 100,000 x EUR 5.00 = EUR 500,000.
Value of his holdings after the rights issue:
100,000 x EUR 5.00 = EUR 500,000.
10,000 x EUR 4.00 = EUR 40,000
value of 110,000 shares: EUR 540,000
Theoretical market price after the exdate of the rights issue: EUR 540,000 / 110,000 = EUR 4.91 per share.
The theoretical value of every right equals therefore: EUR 5.00 - EUR 4.91 = EUR 0.09. In reality however, the right issue takes place over a period of time in which the value of the shares will change and hence the value of the rights will change accordingly.
Please note that every shareholder has got 4 basic option in a rights issue event:
1) Take No Action and let the rights lapse worhtless.
please note that under this option the value of his holdings decreases from EUR 500,000 to EUR 491,000. Put differently: he loses 100,000 x (EUR 5.00 - EUR 4.91) = EUR 9,000.
2) Sell the rights.
Under this option he will not lose any value if he manages to sell his rights for at least EUR 0.09 each.
3) Exercise the rights in order to subscribe to 10,000 new share for a total amount of EUR 40,000
In this case the value of his original holdings stays the same, however, he needs to invest an additional EUR 40,000 to achieve this.
4) buy (and subsequently exercise) additional rights from other shareholders. In this case the shareholder could make a profit if he manages to buy the rights for less than EUR 0.09 per right.
Combinations of the options mentioned above are possible as well.
The above are THEORETICAL calculations only. In reality, a rights issue will take place during the course of a couple of weeks and the share price is subject to several factors, like developments in underlying operations, macro-economic data and market sentiment. Also a shareholder needs to be confident that the management of the company will find good use for the extra money. ...more rights issue...
In the example the total value of the holdings will increase from EUR 500,000 to EUR 650,000:
Value before the offer: (100,000 x EUR 5.00) = EUR 500,000
Value after offer announcement: (100,000 x EUR 6.50) = EUR 650,000.
Since the shares can be offered to the bidder for EUR 6.50 per share, the market price of the shares will creep closer to EUR 6.50 per share. ...more tender offer...