Rights Offering (Issue)

Think: "a right to buy." And buy at a discount.

Companies may be fearful of a hostile takeover, or some other big bad event, and they want to give existing shareholders preferential treatment over external non-shareholders. So they might say, "Okay, pals, for the next 60 days, you have the right to buy an additional share of our stock, which is currently trading for $312/share for $200/share...note the discount, wink wink...and you need to currently own 5 shares for every 1 that you'll then buy. Sound like a plan?"

That is, the company is offering those rights to buy at a discount—and the shareholders can sell those rights to other non-shareholders for cash. In essence, it's kind of a funky, one-time dividend that actually hurts both would-be external hostile takeover people...but unfortunately also employees who have stock options, not actual shares, so they then suffer the dilution of this rights offering.

And you may ask, “Is there such a thing as a, uh...hostile takeunder?”