Offer For Sale

Definition in Detail§

Offer For Sale is a process where a company invites the general public to purchase its stock through an intermediary, such as an issuing house or a merchant bank. This method is particularly prevalent during the initial offering of shares in the primary market and involves intermediaries that facilitate the distribution of shares to investors.

There are two main forms of an offer for sale:

1. Public Issue: Here, shares are offered to the public at a fixed price. If the demand for the shares exceeds the available supply, some form of balloting or rationing is implemented to allocate the shares among the interested parties.

2. Issue by Tender: In this mechanism, individuals bid to purchase a fixed quantity of stock at or above a specified minimum price. The shares are then allocated to the highest bidders.

An offer for sale ensures widespread distribution of shares among investors and involves the intermediary taking responsibility for underwriting and managing the process.

Examples§

1. XYZ Corporation’s Public Issue: XYZ Corporation decided to go public through an offer for sale, fixing the share price at $15 each. Due to high interest, the company’s stock was oversubscribed, and shares were allocated to investors via a balloting process to ensure fair distribution.

2. ABC Ltd’s Issue by Tender: ABC Ltd wanted to raise capital and chose an issue by tender. The minimum bid price was set at $20 per share. Investors placed their bids, and the shares were allocated to the highest bidders who had bid above the minimum price.

Frequently Asked Questions (FAQs)§

1. What is the difference between an offer for sale and an offer by prospectus?§

An offer for sale involves intermediaries like issuing houses or merchant banks, whereas an offer by prospectus is a direct invitation from the company to the public to subscribe to new issues of shares, typically including detailed financial and operational information.

2. How does an offer for sale differ from an introduction or placing?§

An introduction involves admitting existing shares to an exchange without raising new funds, while placing involves selling shares directly to select institutional investors rather than the general public.

3. Why do companies choose an offer for sale for flotation?§

Companies select an offer for sale to access a broad investor base, ensure liquidity in the market, meet regulatory requirements, and often to benefit from the expert services of intermediaries.

Related Terms with Definitions§

• Flotation: The process of converting a private company into a public company by issuing shares available to the public.
• Public Issue: The initial sale of a company’s shares to the general public at a fixed price.
• Issue by Tender: A method where investors bid for shares at or above a minimum price and the highest bidders receive the shares.
• Introduction: Listing of a company’s existing shares on a stock exchange without raising new capital.
• Placing: Direct sale of shares to institutional or select investors, bypassing the general public.

Online Resources§

• Investopedia - Initial Public Offering (IPO)
• SEC - Initial Public Offerings: What You Need to Know
• London Stock Exchange - How to List

Suggested Books for Further Studies§

1. “Investment Banking: Valuation, Leveraged Buyouts, and Mergers & Acquisitions” by Joshua Rosenbaum and Joshua Pearl
2. “Corporate Finance: The Core” by Jonathan Berk and Peter DeMarzo
3. “The Intelligent Investor” by Benjamin Graham
4. “Initial Public Offerings: The Mechanics and Performance of IPOs” by Arif Khurshed
5. “Investment Valuation: Tools and Techniques for Determining the Value of Any Asset” by Aswath Damodaran

Accounting Basics: “Offer For Sale” Fundamentals Quiz§

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