Which corporate action has a default option that will occur if the shareholder does not intervene?

Which corporate action has a default option that will occur if the shareholder does not intervene?

• A. Rights issue
• B. Takeover bid
• C. Scrip issue
• D. Dividend reinvestment plan

Answer: (A)

In a rights issue, existing shareholders are given the first option to buy additional shares at a discount within a set window to maintain their proportional stake. If you do nothing, your rights simply lapse and you do not acquire any new shares. As new shares are issued to those who do exercise, your percentage ownership is diluted unless you already held a larger stake or you act to subscribe. You can also sell the rights in the market to recover some value, but the default path for a non-intervention is to forfeit the rights and face dilution.

In a rights issue, existing shareholders are given the first option to buy additional shares at a discount within a set window to maintain their proportional stake. If you do nothing, your rights simply lapse and you do not acquire any new shares. As new shares are issued to those who do exercise, your percentage ownership is diluted unless you already held a larger stake or you act to subscribe. You can also sell the rights in the market to recover some value, but the default path for a non-intervention is to forfeit the rights and face dilution.