Follow-On Offering
A follow-on offering (FPO) is an issuance of stock shares following a company's initial public offering (IPO). There are two types of follow-on offerings: diluted and non-diluted. A diluted follow-on offering results in the company issuing new shares after the IPO, which causes the lowering of a company's earnings per share (EPS).
During a non-diluted follow-on offering, shares coming into the market are already existing and the EPS remains unchanged.
Any time a company plans to offer additional shares, it must register the FPO offering and provide a prospectus to regulators.
Definition: A secondary offering refers to the issuance of additional shares by a company after its initial public offering (IPO). There are two types of secondary offerings: dilutive and non-dilutive. A dilutive secondary offering occurs when a company issues new shares after the IPO, leading to a decrease in earnings per share (EPS). A non-dilutive secondary offering involves the introduction of existing shares into the market, keeping the EPS unchanged.
Origin: The concept of secondary offerings originated with the development of capital markets, particularly when companies needed more funds to expand their business or make significant investments. The earliest cases of secondary offerings can be traced back to the late 19th century when large enterprises raised funds by issuing additional shares.
Categories and Characteristics: Secondary offerings are mainly divided into dilutive and non-dilutive offerings. The characteristic of a dilutive offering is that the company issues new shares, increasing the total number of shares in the market, which may lead to a decrease in the existing shareholders' ownership percentage. A non-dilutive offering involves reintroducing existing shares into the market, which does not affect the existing shareholders' ownership percentage.
Specific Cases: 1. A tech company, two years after its IPO, successfully developed a new product but needed more funds for market promotion and production expansion. The company decided to conduct a dilutive secondary offering, issuing new shares to raise funds. Although the EPS decreased, the company ultimately enhanced its overall profitability through the successful sales of the new product. 2. A manufacturing company, after its IPO, found that there was strong market demand for its stock. The company decided to conduct a non-dilutive secondary offering, introducing some shares held by executives into the market to meet investor demand while keeping the EPS unchanged.
Common Questions: 1. How does a secondary offering affect the stock price? A dilutive secondary offering may cause the stock price to drop in the short term due to a decrease in EPS, while a non-dilutive offering has a smaller impact on the stock price. 2. How can investors determine if a secondary offering is beneficial? Investors should focus on the company's purpose for the offering and the planned use of the funds. If the funds are used for high-return projects, the offering may be beneficial for the company's long-term development.
