A company announces an overnight follow-on offering of 15 million shares priced at $42 per share, a 4.5% discount to the closing price of $44. The offering includes 10 million primary shares and 5 million secondary shares from the CEO. What are the total gross proceeds, and how are they split?
- ATotal proceeds of $630 million: $420 million to the company and $210 million to the CEO✓ Correct answer
- BTotal proceeds of $630 million: all proceeds go to the company
- CTotal proceeds of $660 million: $440 million to the company and $220 million to the CEO
- DTotal proceeds of $630 million: $315 million to the company and $315 million to the CEO
Why A — Total proceeds of $630 million: $420 million to the company and $210 million to the CEO
Total gross proceeds are 15 million shares x $42 = $630 million. The company receives proceeds from the 10 million primary shares (10 million x $42 = $420 million), and the CEO receives proceeds from the 5 million secondary shares (5 million x $42 = $210 million). Both amounts would be reduced by underwriting fees. The 4.5% discount to the closing price is typical for overnight follow-on offerings, which are marketed and priced in a single evening session. The CEO's sale would also need to comply with any applicable lock-up agreements and insider trading policies.
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