(P.S. The illustration below is written a week ago, since then the shares been declining.)
On my main Tullow Oil article, I explained the calculation of the Rights Issue affects an individual Tullow’s shareholder.
This post is an expansion, which includes two examples: -
One shareholder bought the shares at £8.32, the other at £1.60 per share.
Then, it goes on to explain what happens if you sold the shares, as well as calculating the new breakeven shareholder for the individual who bought at £8.32.
And finally, it goes on to explain the conditions why, you, as a Tullow’s shareholder should keep the Rights.
N.B.: Some calculations involve in this article uses hypothetical share price of Tullow for illustration and educational purposes. Therefore, shouldn’t be taken as a prediction or forecasts.
The Rights Issue offer for Tullow’s shareholders is 25 for 49 rights issue, at 130p per share (A 35% discount, I believe). The issue aims to raise circa £600m ($750m).
What if you took up your Rights?
The “Rights” Example
For example, you are a long-term Tullow’s shareholder having bought 10,000 shares at £8.32/share, the total value of £83,200. (Ignoring transaction fees)
With the shares at £2.29, you are sitting on a loss of approx. £60k. Still, you are willing to help Tullow Oil out by participating in the Rights Issue.
How much more do you need to fork out?
Doing the maths.
25 FOR 49 Rights issue means you get to subscribe for a further 25 new shares for every 49 shares held.
Take 10,000 shares and divide by 49, then multiply by 25.
(10,000 ÷ 49 = 204, then 204 x 25 = 5,102 shares)
At £1.30/share, you pay £6,632.
Round-up
Your original shareholding would have gone from 10,000 shares to 15,102 shares.
Selling today
Since these are nil rights, you can sell after purchase. The price depends on the market price of Tullow Oil.
Tullow’s share price was £2.29/share (as of 13/04/2017, and some days after the Rights) and you decide to sell your Rights shares.
You would make a £0.99/share profit. (£2.29/share minus £1.30/share)
Or, £0.99 multiple by 5,102 shares = £5,051 or 76% of profit.
Drawback from…
