Pre-emptive offer
Several types of pre-emptive offer can be identified:
- pre-emptive offer through the issuing of shares of the same category;
- pre-emptive offer through the issuing of shares with warrants;
- pre-emptive offer through the issuing of convertible bonds with warrants;
- pre-emptive offer through the issuing of securities of a different category.
When a share capital increase is resolved, each shareholder is entitled to underwrite: this right can be exercised during the underwriting period set by the company, which starts from the right detachment day ("ex" date).
Borsa Italiana calculates the adjustment coefficient according to formula 3. This value, always rounded to 6 decimal digits, is applied to strike prices (daily closing prices) and to the lot.
Consequently, stock option contracts (stock future) subject to a pre-emptive offer will see a change in their strike prices (daily closing prices) and lot size.
More specifically, the K coefficient is calculated as follows:
Formula 3.
P ex
K = -------------
P cum
where:
- P ex = theoretical price ex rights = [(Pcum * V)+(Psub * N)] / (V+N)
- P cum = last price cum rights
- P sub = subscription price of 1 new share
- V = number of old shares
- N = number of new shares issued
Naturally, Borsa Italiana calculates the ex rights theoretical price taking into account the bond (or warrants) value should these be part of the paid share capital increase.
Impact on derivatives contracts
Adjustment of exercise price (daily closing price):
Eex = Ecum x K
where:
- Ecum = strike price (daily closing price) before the adjustment
- Eex = strike price (daily closing price) after the adjustment
Adjustment of the number of underlying shares (lot):
1
Aex = lot x -----
K
where:
- Aex = number of underlying shares after the adjustment
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Example
Pirelli & C. S.p.A. pre-emptive offer, official notice n. 1322 of 2/2/2005
Description of the adjustment
Pirelli & C. S.p.A. approved a capital increase with the issuance of a maximum of 1.5 billion ordinary shares to offer as stock options to ordinary shareholders and savings shares by issuing 2 new ordinary shares for every 5 shares of any category already in possession at the unit price of 0.70 euro per share, of which 0.18 euro as share premium. The cum price is equal to 1.105 euro.
Impact on Pirelli stock options
With reference to the capital increase for Pirelli & C., Borsa Italiana informs that it will adjust the Pirelli stock option contracts.
The coefficient (k) will be rounded to the 6th decimal digit and is determined as such:
(1.105*5 + 0.70*2)/(5+2)
K = -------------------------------------- = 0.895281
1.105
Adjustment of exercise price:
Eex = Ecum x 0.895281
where:
- Ecum = exercise price before the adjustment
- Eex = exercise price after the adjustment
Adjustment of the number of underlying shares (lot):
1
Aex = 1,000 x ------------ = 1,117
0.895281
where:
- Aex = number of underlying shares after the adjustment
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