My best sense is that the business is currently (pre-rights)...

My best sense is that the business is currently (pre-rights) worth somewhere in the range $5,500 m to $6,300 m (#). Given that there are currently a bout 1180m shares on issue (including prospective shares), that equates to a fair value somewhere in the range $4.70 to $5.30 per share (my opinion only).

If all rights are exercised, then the business will raise an additional 69m shares (1/17 = 5.9%) at a price of $2.50 per new share. As such, we can say that the value of the enterprise will go up by about $173m ( 69m x $2.50 ). Assuming my fair value estimates are about right, and taking the mid-point ($5,900m = $5.00 per current share), then we can say that the fair value of the enterprise will increase by about 2.9%. However, the number of shares on issue will go up by about 5.9%. Hence, ex rights, the per share value of the enterprise will reduce by about 2.8% ( 1.029/1.059 -1 ). On this basis, we can say that the per share fair value will reduce by 14c (2.8% x $5.00) (*).

That looks like market noise to me.

On the other hand, if you believe that the current market price fairly values the business, then the fair value of the enterprise is about $5,230m ($4.45 x 1180). Then we can say that the fair value of the enterprise will increase by about 3.3%. However, once again the number of shares on issue will go up by about 5.9%. Hence, ex rights, the per share value of the enterprise will reduce by about 2.5% ( 1.033/1.059 -1 ). On this basis, we can say that the per share fair value will reduce by 11c (2.5% x $4.45) (*).

Once again, market noise. As such, talking about how shares will trade ex rights, seems like nonsense to me.


Important note: Whilst the the impact of the rights, to a non shareholder, is of little significance, participation in the rights are of substantial significance to existing holders. Participation prevents substantial dilution, but provides a vehicle by which to acquire franking credits.



(#): I'm referring here to "fair value", not "compelling value"
(*): This does not mean that existing shareholders participating in the rights issue will be diluted, as they will each be acquiring an additional 5.9% shares.