secondary offering

The sale of a large block of outstanding stock through dealers outside a stock exchange.

1. The issuance of new stock for public sale from a company that has already made its initial public offering (IPO). Usually, these kinds of public offerings are made by companies wishing to refinance, or raise capital for growth. Money raised from these kinds of secondary offerings goes to the company, through the investment bank that underwrites the offering. Investment banks are issued an allotment, and possibly an overallotment which they may choose to exercise if there is a strong possibility of making money on the spread between the allotment price and the selling price of the securities.

2. A sale of securities in which one or more major stockholders in a company sell all or a large portion of their holdings. The proceeds of this sale are paid to the stockholders that sell their shares. Often, the company that issued the shares holds a large percentage of the stocks it issues.

Investopedia Says:
1. This sort of secondary public offering is a way for a company to increase outstanding stock and spread market capitalization (the company's value) over a greater number of shares. Secondary offerings in which new shares are underwritten and sold dilute the ownership position of stockholders who own shares that were issued in the IPO.

2. Typically, such an offering occurs when the founders of a business (and perhaps some of the original financial backers) determine that they would like to decrease their positions in the company. This kind of secondary offering is common in the years following an IPO, after the termination of the lock-up period. Owners of closely held companies sell shares to loosen their position - usually gradually, so that the company's share price doesn't plummet as a result of high selling volume. This kind of offering does not increase the number of shares of stock on the market, and it is most commonly performed in the case of a company that is very thinly traded. Secondary offerings of this sort do not dilute owners' holdings, and no new shares are released. There is no "new" underwriting process in this kind of offering.

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Public sale of previously issued securities held by large investors, usually corporations, institutions, or other Affiliated Persons, as distinguished from a New Issue or Primary Distribution , where the seller is the issuing corporation. As with a primary offering, secondaries are usually handled by Investment Bankers, acting alone or as a syndicate, who purchase the shares from the seller at an agreed price, then resell them, sometimes with the help of a Selling Group, at a higher Public Offering Price making their profit on the difference, called the Spread. Since the offering is registered with the Securities and Exchange Commission, the syndicate manager can legally stabilize-or peg-the market price by bidding for shares in the open market. Buyers of securities offered this way pay no commissions, since all costs are borne by the selling investor. If the securities involved are listed, the Consolidated Tape will announce the offering during the trading day, although the offering is not made until after the market's close. Among the historically large secondary distributions were the Ford Foundation's offering of Ford Motor Company stock in 1956 (approximately $658 million) handled by 7 firms under a joint management agreement and the sale of Howard Hughes' TWA shares ($566 million) through Merrill Lynch, Pierce, Fenner & Smith in 1966.

A similar form of secondary distribution, called the Special Offering, is limited to members of the New York Stock Exchange and is completed in the course of the trading day. See also Exchange Distribution; Registered Secondary Offering; Securities and Exchange Commission Rules 144 and 237.

It has been suggested that this article or section be merged with Follow-on offering. (Discuss)

A follow-on offering (often called secondary public offering just secondary offering) is an issuance of stock subsequent to the company's initial public offering. A follow-on offering can be either of two types (or a mixture of both): dilutive and non-dilutive (as rights issue). Furthermore it could be a cash issue or a capital increase in return for stock.

A secondary offering is an offering of securities by a shareholder of the company (as opposed to the company itself, which is a primary offering). For example, Google's initial public offering (IPO) included both a primary offering (issuance of Google stock by Google) and a secondary offering (sale of Google stock held by shareholders, including the founders).

In the case of the dilutive offering (seasoned equity offering), the company's board of directors agrees to increase the share float for the purpose of selling more equity in the company. This new inflow of cash might be used to pay off some debt or used for needed company expansion. When new shares are created and then sold by the company, the number of shares outstanding increases and this causes dilution of earnings on a per share basis. Usually the gain of cash inflow from the sale is strategic and is considered positive for the longer term goals of the company and its shareholders. Some owners of the stock however may not view the event as favorably over a more short term valuation horizon.

The non-dilutive type of follow-on offering is when privately held shares are offered for sale by company directors or other insiders (such as venture capitalists) who may be looking to diversify their holdings. Because no new shares are created, the offering is not dilutive to existing shareholders, but the proceeds from the sale do not benefit the company in any way. Usually however, the increase in available shares allows more institutions to take non-trivial positions in the company.

As with an IPO, the investment banks who are serving as underwriters of the follow-on offering will often be offered the use of a greenshoe or over-allotment option by the selling company.

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