The Rights Issue - Mergers, Acquisitions, Venture Capital, Hedge Funds -- DealBook - New York Times:
"Rights issues are all the rage. The Royal Bank of Scotland just announced a nearly $24 billion rights offering to shore up its capital base. And last week, Blockbuster made a $1.35 billion all-cash offer to buy Circuit City, part of which would be financed by a rights offering.
....Rights offerings are commonplace in Europe, unlike in the United States....In a typical rights offering, a publicly traded company issues rights to a company’s existing shareholders to buy a number of shares of the company at a discount to the market price within a certain amount of time. The rights are often transferable and trade on the stock market during this take-up period. Shareholders have an incentive to exercise the rights or otherwise be diluted by the issuance of new equity. This dilution can be partially offset if the rights can be sold instead of simply exercised."