Money Cook

What will happen to my shares when the company issues new common shares?

I have shares in Ford, and I've heard that they are going to issue new common shares 20% in excess of the outstanding amount. When this happens, how is actually going to affect my shares? I know people are talking about dilution, but I don't really get what they mean by that. Does that mean the shares are going to reverse-split or only the price is going to go down somewhat?

Public Comments

1. Dilution means that the current shares will be "watered down" so in the case of stocks. The stock will go down depending on the price that the offering is at, for example, Fords close today was 5.69, if the offering is prices at say $5.7 then your shares would be fine, or if it was priced about 5.69 you would be looking good. But say they priced the shares at $3, then there is a strong possibility that the stock price would go down towards the $3 mark. An example of this was in October General Electric had a secondary offering with a price of $22.25, and the previous day the stock had closed at $24.5. At the end of the day with the offering GE closed at $22.15. So the whole point is where the price of the offering is!!
2. http://www.investopedia.com/terms/d/dilution.asp http://www.investopedia.com/ask/answers/07/secondary_offering.asp
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