1. (a) Explain the difference between an offer for sale of ordinary shares at a

Question

1. (a) Explain the difference between an offer for sale of ordinary shares at a fixed price and an offer for sale of ordinary shares by subscription. marks] [2 Another method of issuing ordinary shares is to offer them for sale by tender. A company is proposing to sell 30m shares with nominal value 50p each by this method and has received offers as follows Price Offered Shares Requested Number of Investo 60p 70p 80p 90p £1.00 £1.10 £1.20 5,000,000 9,000,000 18,000,000 11,500,000 3,000,000 500,000 800,000 8,000 5,000 7,000 4,000 600 300 100 (b) Define strike price and determine the maximum it could be for this sale of shares. [3 marks] (c) Calculate the average number of shares each successful investor will receive assuming a pro rata allocation. 1 markl

Explanation / Answer

There is a key difference between offer for sale and offer for subscription. In an offer for sale, the investors are invited to purchase new shares of a company; in an offer for subscription, a minimum level of subscription should materialize if the offer is to be successful (in case this criterion does not meet, the offer is withdrawn). Strike Price: The price at which the futures contract underlying a call or put option can be purchased (if a call) or sold (if a put). Also referred to as exercise price Cummulative No of shares alloted Value of the shares alloted To no of shareholders 1.2 100        8,00,000                      8,00,000                8,00,000                      9,60,000                     100 1.1 300        5,00,000                   13,00,000                5,00,000                      5,50,000                     300 1 600      30,00,000                   43,00,000              30,00,000                    30,00,000                     600 0.9 4000 1,15,00,000                1,58,00,000          1,15,00,000                1,03,50,000                  4,000 0.8 7000 1,80,00,000                3,38,00,000          1,42,00,000                1,13,60,000                  7,000 0.7 5000      90,00,000                4,28,00,000          3,00,00,000                2,62,20,000               12,000 0.6 8000      50,00,000                4,78,00,000 It will generate $26.22 Million from issue of shares Average no of shares to each sucessful shareholder=30000000/12000 2500 Shares

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