Banking Terms - Set 14 (Rights issue, Acceptance period, Bearer shares, Compensation, Book value)

Book Value

The value of a company's assets as shown in the Annual Report and Accounts. It stands to the net assets of the company [total assets - total liabilities].

For E.g. Company A has $24 billion in assets and $19.3 billion in liabilities, then the company’s book value would be the difference between above two i.e. $4.7 billion.
This value divided by the total number of outstanding shares will give the book value per share of a company. If this value is greater than company's market value, then it is considered as undervalued.

Compensation

Compensation is the amount of money (or) additional securities a purchaser receives from the seller, if he had bought the shares before the ex-date of a corporate action and the shares gets settled in his account only after the ex-date.

For E.g. Person A buys 100 shares from Person B before the ex-date of a cash dividend. Shares and the price he pays for them however settle after the ex-date. This means that, the seller will receive the cash proceeds as a result of cash dividend, while the buyer is entitled to them. The buyer has to CLAIM the cash proceeds from the seller.

Bearer Shares

Securities can either have "bearer" or "registered" form. For E.g. In the past, when securities were in paper form, a shareholder would go to his bank and take the paper with him to collect for example a dividend. As proof that the dividend was paid out, the bank employee would tear off one of the many coupons from the share. The name of the shareholder was not registered anywhere by the issuer of the security. The bank could go to the issuer and exchange the coupon for the dividend payment.

Acceptance Period

The acceptance period is the period in which shareholder can accept the offer. They would usually do so by sending an instruction to their broker or custodian.

E.g. Company A has announced a tender offer, it has announced a period of 7 days to accept the tenders/bids which has been allocated to them, such a period is called a Acceptance Period.

Entitlement Calculation for Rights Issue

If a Rights Issue or an Open Offer is announced, the ratio and Call Cost will be used to calculate the entitlement of a particular person.

Company X announces a Rights Issue offering 2 new shares for every 5 held, at 1USD and person A has 1000 Ordinary shares on the EX-Date, then A's entitlement would be as follows,
2 new shares for every 5 held on the Ex-date means, that person A will be able to buy 400 new shares & Call cost of 1USD per new share purchased = 400x1USD = 400USD.