What Happens After the Offering of Common Stock & Warrants?
Original post by Dennis Hartman of Demand Media
Issuing stock through an initial public offering is one of the key steps in a company's growth, But while an IPO represents the end of a long, complex process, it is also the beginning of a new phase in the financial life of a business and its new investors. After offering shares of common stock and warrants, several things begin to happen simultaneously.
The Securities and Exchange Commission oversees stock market regulation. Once a company issues an IPO, the SEC mandates a 25-day waiting period, or quiet period. During this time the company's leaders and the underwriters involved in the IPO can't issue formal statements or offer estimates of the company's value. Once the quiet period ends, this information quickly becomes available to investors who can then weigh the option of buying common stock against other investment opportunities.
Even before the quiet period ends, once common stock and warrants have been issues the stock becomes available for trading on an exchange. Anyone who holds a seat on an exchange can trade the stock, while brokers and their clients can place orders through them. Over time trading, along with the published reports, financial statements and analyst comments that impact it, will determine the share price of the common stock and cause it to rise or fall based on what investors as a whole feel the company is worth.
As a business with outstanding shares of stock makes money, it can choose to retain some and distribute the rest to investors in the form of dividends. Owners of preferred stock receive dividends first, guaranteeing a return on their investments. Common stock holders receive dividends next, if there is sufficient cash available for the payment. If preferred stock owners also have warrants, which some companies include with shares of preferred stock during an IPO, they can exercise these special rights to buy shares of common stock at predetermined prices, giving them chances to earn additional dividends in the future.
Once a business has offered common stock and warrants through an IPO, it must begin pursuing an operational strategy. Regardless of the reasons for the IPO, offering stock means an injection of capital into the business. This is money that leaders can choose to spend on acquiring other businesses, marketing to increase its customer base, expanding into new markets or developing new products. Even after issuing common stock, a business can still sell bonds, which may come with warrants, to raise even more money.
- Cornell University; A Guide to the Initial Public Offering Process; Katrina Ellis et al.; January 1999
- Office of the New York State Attorney General: Understanding Common Investments - Stock
- Ryan, Swanson & Cleveland PLLC: Hit or Miss - The Use of Warrants, Options or Stock in Lieu of Cash
About the Author
Dennis Hartman is a freelance writer living in California. His work covers a wide variety of topics and has been published nationally in print as well as online. Hartman holds a Bachelor of Fine Arts from Syracuse University and a Master of Arts from the State University of New York at Buffalo.
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