Warrant
A warrant gives the holder the right to buy new shares from the issuing company at a fixed price before expiry, like a long-dated call option, except exercise creates new shares and dilutes existing owners.
What it is
See it move
A company with 10 million shares issues 1 million warrants exercisable at €6.00. When the share price reaches €9.00, all warrants are exercised: the company issues 1 million new shares and collects 1,000,000 × €6.00, or €6,000,000. Shares outstanding rise to 11 million, diluting existing holders to about 90.9%.
The formula
Variables
- Number of warrants exercised (warrants)
- Exercise price per share (€)
The cash the issuing company collects when warrant holders exercise, which the company itself receives — unlike a listed call option.
Check yourself
A company has issued 2 million warrants, each exercisable into one new share at €7.50. When the share price reaches €11.00, all 2 million warrants are exercised. How much cash does the company raise from the exercise?