An open offer (also known as an entitlement issue) is a type of corporate action. In order to raise money, a company may offer its existing shareholders the right to buy new shares at a discount to the market price. In this way, it works very similarly to a rights issue, another type of corporate action.
Let’s say you own 400 shares in a company. They announce an open offer of subscription shares, giving you the right to buy one share for every five you own – meaning you could buy up to 80 overall. This is known as the ‘basic entitlement’, a guaranteed offer that can’t be scaled back. And let’s say the company is offering these shares at £1.20 each, rather than the market price of £2. That means you can buy these 80 shares for a total of £96 (a discount of £64).
On top of your ‘basic entitlement’, open offers also have an ‘Excess Application Facility’, giving you the chance to buy additional discounted shares. This is a separate pool of subscription shares. As it isn’t guaranteed, it can be scaled back if oversubscribed.
Where an open offer differs from a rights issue is that you don’t have the option to sell your rights in the market. And if you do nothing, unlike a rights issue you won’t receive a lapsed payment.
So as a shareholder, you typically have three options when an open offer is announced:
•Take up all or part of the basic entitlement – by paying the discounted price of the subscription shares, and increasing your holding in the company. There are no dealing charges or stamp duty payable when you take up shares in an open offer.
•Do nothing – you won’t buy the basic entitlement of subscription shares, and won’t receive a lapsed payment (as with a rights issue)
•Take up excess shares – by buying more discounted shares on top of your basic entitlement. If this is scaled back, the additional cash put forward will be returned to you.
If a company you hold shares in announces an open offer, we'll send you a secure message. This will explain your entitlement, the cost involved, and how to confirm your chosen option. We’ll also let you know the deadline for when you need to make a decision.
You can read your secure messages by logging in and in the ‘My account’ menu, clicking 'Secure messages'.
