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I am befuddled by the announcement of a rights offering in which stockholders were given the right to purchase the stock at a price of 5.50$ when the market price was at 4.40$. This seemed very unrealistic, I mean who would do that? But to my immense surprise the market price increased to 5.50$ in the following week! Why is that? None of the company fundamentals have changed and there were no other news. If the company had set a price of 6.00$ in the rights offering, would the price have increased to 6$? Obviously the company thinks that their shares are worth that much but why did the market suddenly agree?
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I am long a micro-cap stock with ticker symbol LGL (https://finance.yahoo.com/quote/LGL?p=LGL). Two months ago they announced they would hold a rights offering in which stockholders will receive transferable rights to purchase additional shares (http://www.businesswire.com/news/home/20170622006127/en/). Not much happened after that and as I expected the stock price fell a little due to the upcoming dilution. However last week they announced (http://www.businesswire.com/news/home/20170816006064/en/) that they would offer the shares for a price of 5.50$ a share (going into effect on September 5). At the time of the announcement the stock was trading around 4.40$. I saw that and was like huh? I couldn't understand why they set the price of the offering so markedly above market price. Over the last week I watched with astonishment a steady increase until the market price hit 5.48$ yesterday. Why did this happen? Obviously management thinks that the company is worth that much, but why did the market simply believe this statement without any additional information?