Rights issue

A rights issue is an offer of new shares to existing shareholders in proportion to their holdings, usually at a discount, letting a company raise equity without diluting shareholders who subscribe.

ByHoang TruongUpdated July 11, 2026

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A company with 4,000,000 shares trading at €5.00 launches a one-for-four rights issue at €4.00, raising 1,000,000 times €4.00, or €4,000,000. Adding that to the existing €20,000,000 of equity gives €24,000,000 over 5,000,000 shares, a theoretical ex-rights price of €4.80 — and a right worth €0.20 per existing share.

Where it fits

SubjectCorporate FinanceCoreTopicCapital Structure & LeverageCoreTopicBond & Equity ValuationCore

The formula

LaTeX

TERP = \frac{N \times P_0 + M \times S}{N + M}

Variables

$T E R P$: Theoretical ex-rights price (€ per share)
$N$: Shares in issue before the rights issue (shares)
$P_{0}$: Share price before the rights issue (€ per share)
$M$: New shares issued (shares)
$S$: Subscription price of a new share (€ per share)

Gives the theoretical ex-rights price, the blended share price once the new, cheaper shares are added to the existing ones.

LaTeX

R = \frac{TERP - S}{n}

Variables

$R$: Theoretical value of one right (€ per existing share)
$T E R P$: Theoretical ex-rights price (€ per share)
$S$: Subscription price of a new share (€ per share)
$n$: Existing shares required to earn one new share (the entitlement ratio) (shares)

Gives the theoretical value of the right attached to each existing share, based on the entitlement ratio n.

Check yourself

PracticeCORE

A company has 10,000,000 shares in issue trading at €8.00 and launches a one-for-five rights issue at a subscription price of €6.50. What is the theoretical ex-rights price?

Select an answer to check your understanding.