Secondary market transaction definition11/7/2023 Furthermore, external factors such as the prevailing investor sentiment and state of the capital markets on the date of the announcement can all contribute to the market’s perception of the corporate decision to raise more capital. The market reaction to a public company post such an announcement tends to be negative because questions are immediately raised regarding the underlying reason behind the capital raise. In a public statement, the founder of CEO of Tesla, Elon Musk, stated that the purpose for the secondary offering was “to further strengthen its balance sheet, as well as for general corporate purposes,” while acknowledging that the company would incur significant expenses and delays caused by the outbreak of COVID. To incentivize more buyers, the follow-on offering was priced at a slight discount (4.6%) relative to the company’s most recent closing share price. In an effort to raise $2 billion, Tesla sold 2.65 million shares at an offering price of $767 per share. Because the company already has shares listed on a public exchange, it is frequently called a “follow-on offering.”įollow-On Offering Definition (Source: LII) What is an Example of a Secondary Offering?Ī real-world example of a secondary offering, or follow-on offering, was conducted in February 2020 by Tesla (NASDAQ: TSLA) during the COVID-19 pandemic.
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