Legal Definitions - special offering

A special offering refers to a specific type of securities offering where a company sells its securities to investors. It is distinguished from other offerings by particular conditions, regulatory provisions, or the nature of the investors targeted.

A special offering refers to a method of selling a large block of securities, such as stocks or bonds, outside of the regular, continuous trading process on a stock exchange. This approach is typically used when a single seller wants to dispose of a significant quantity of shares without causing a sudden drop in the market price due to an overwhelming supply.

In a special offering, a broker or investment bank facilitates the sale by finding buyers for the large block of securities, often at a fixed price that might be slightly below the current market price to incentivize a quick transaction. This method helps to efficiently transfer a substantial number of shares from one party to another with minimal disruption to the broader market.

Here are a few examples to illustrate this concept:

• Imagine a large university endowment fund that holds a substantial number of shares in a particular pharmaceutical company. The fund decides to rebalance its portfolio and sell off its entire stake, which represents 3% of the company's outstanding shares. If they were to sell all these shares through regular market orders, it could flood the market and significantly depress the stock price, reducing their return. Instead, the endowment's investment bank arranges a special offering. The bank identifies several large institutional investors, such as other pension funds and mutual funds, who are interested in acquiring a significant block of these shares. The shares are then sold directly to these pre-identified buyers at a negotiated, fixed price, ensuring an orderly and efficient sale without disrupting the daily trading activity on the stock exchange.

• Consider a founder of a successful technology startup who needs to sell a substantial portion of their personal stock holdings to fund a new philanthropic venture. They own millions of shares, and selling them all at once on the open market could create negative perceptions and significantly impact the company's stock value. To avoid this, their financial advisor might recommend a special offering. A broker would then discreetly approach a few large private equity firms or wealthy individual investors who have expressed interest in acquiring a significant stake in the company. The shares are sold to these specific buyers at a predetermined price, allowing the founder to liquidate their holdings efficiently and privately, without causing market volatility.

• A government agency that previously privatized a state-owned utility company still holds a minority stake of 5% in the company's shares. To complete the privatization process and raise additional funds, the government decides to sell its remaining shares. Rather than simply listing them on the open market, which could take a long time and potentially depress the stock price, they opt for a special offering. An investment bank is hired to manage the sale, perhaps offering the shares to existing institutional shareholders or a consortium of new investors at a set price over a defined subscription period. This structured approach ensures that the large block of shares is absorbed by the market in a controlled manner, achieving the government's objectives efficiently.