If a company announce and distribute the "Further public offer" (FPO) will the market price of that company in secondary market get adjusted? If it adjust then what will be the formula to find out the adjusted market price after the FPO distribution?
closed as unclear what you're asking by Dheer, Brythan, Nathan L, Pete B., Michael Sep 5 '17 at 13:45
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In light of the recent edit to the question ("Does distribution of an FPO affect the current market price..."):
Dilutive FPO: New shares are issued and sold by the company. The company directly benefits from new investment income. However, since there are now more shares in existence, existing shareholders may feel aggrieved since they will own a smaller proportion of the whole company. Whether the FPO affects the share price depends on a number of factors:
If the new shares are sold at the current market price, and not so quickly that they depress the market through normal supply-and-demand effects, then – other things being equal – the price probably shouldn't change (while there are more shares in circulation, the total value of the company will have increased by "the going rate" of those shares, so the overall value-per-share should remain the same).
If the shares are offered at the market price but too quickly, then the normal laws of supply-and-demand may (at least temporarily) reduce the share price. However, if all the new shares were sold at (or near) the original market price, then this may recover if the value-per-share remains (roughly) the same. If a significant number are sold at a reduced price, the value-per-share will have reduced (see below) and the share price may remain depressed.
If the new shares are offered below the current market price, then you can expect the share price to drop, as the increase in the value of the company will be (proportionately) less than the increase in the total number of shares.
All the above assumes no change in the perceived "strength" of the company. Obviously if investors see the FPO as "the last-ditch effort of a struggling company", the price will decline (as people sell); if they see it as a "sound act of a growing company", then the price may rise as people are drawn to it.
Non-dilutive FPO: Here existing privately-held shares (typically owned by a directory or venture capital partner) are sold. Because these are existing shares, the total number of outstanding shares does not change, and so there is no dilution. However, the proceeds of the sale do not benefit the company itself.
As with a Dilutive FPO, selling the shares too quickly, or below current market price would be expected to lower the price. Another factor that could affect the share price is whether the "sale by directors" is seen as "rats leaving a sinking ship" or "justifiable realisation of the strength of a health company".
The original question asked (or was phrased as if it were asking) whether the a company alters the share price because of an FPO. The original answer explained that it didn't (but that market forces – as discussed above – may cause the price to change.