Subscription prices are the prices at which current shareholders of a public company may participate in any rights offering released by that company. The purpose of this subscription price is to provide the current shareholders with the opportunity to maintain their current proportion or percentage of the available shares, if they choose to do so. The pricing on the offering is usually static, with the same price extended to all shareholders, regardless of the number of shares they currently hold.
A subscription price can also have to do with the price offered to warrant holders who have an interest in the stock offering. Since warrants are normally connected with debt offerings, and can be issued from time to time by any given business, the pricing offered with each warrant may vary. As with rights offerings, the warrant offerings are usually limited to current warrant holders.
Both warrant and rights offerings are options for a public company to consider when there is a need to raise capital. Setting the subscription price so that existing investors are open to the idea of buying additional shares via the rights offering has the added benefit of increasing the stake that each shareholder has in the company. Even with warrants, the strategy is likely to keep investors involved in the future of the business, since they will want to see a return from the debt offerings.
The success of these methods requires that the subscription price be competitive with the current price of shares that are offered on an exchange. Some companies may offer the shares at the current market price, or even with a slight discount, as a means of encouraging current shareholders to make a purchase. Doing so helps the company to raise the needed capital in less time, and thus be able to move forward with whatever project requires the funding.
In many instances, the subscription price is issued along with what is known as the oversubscription privilege. This is a provision that allows current shareholders to purchase shares above and beyond the amount necessary to maintain their percentage of investment in the business. A privilege of this type is normally invoked when a number of shareholders choose to not exercise their option to buy additional shares. Instead of offering those remaining shares to new investors, they are first offered to the existing shareholders who have expressed an interest in increasing the proportion of their stake in the company.
