What is an Open Offer?

Well, Here is a definition of an Open Offer.

Investopedia Says : “A secondary market offering that is similar to a rights issue in which an existing shareholder is given the opportunity to purchase stock at a price that is lower than the current market price. The purpose of such an offer is to raise cash for the company.”

In case of Open offer, The Company issues new shares to the existing shareholders only. Open Offer is not for new shareholders. In case of an Open offer, investors are unable to sell the stocks that they purchase under the open offer to other parties.

Say for Example, you hold 10,000 shares of ABC Ltd. Now the Market Price of ABC Ltd. shares is Rs.100 per share. Now Open offer of ABC Ltd. Comes which states that, for every 1000 shares of ABC Ltd., you can buy 100 shares of it at a price of Rs.80 per share only. So in your case you will be able to buy 1000 shares of ABC Ltd. at a discounted price of Rs.80 per share. In this case, both you and the company will be in advantage. Your advantage is that, you will be able to buy shares of ABC Ltd at discounted price and for a Company, it will be able to raise the Finance to fund its ventures & expansion without taking a Debt.

This is an Open Offer. It is advantageous to both the Company & the existing share holders.