The major decision-making factor that would have gone into rolling out the partial privatization of Telstra is the extension of the Commonwealth Government’s successful privatization programs. The 1990’s saw a roll out of such programs and Telstra partial privatization was part of this drive. Secondly, the Government had the need to reduce the Commonwealth debt and Telstra issue proceeds would be used for this debt reduction. Finally, the Government would have wanted to introduce more competition in the telecommunication market in Australia and this initiative would lower costs to all consumers. Specific emphasis was on rural businesses and consumers.
A public float issue process was created, and Australian residents, institutional local and foreign investors were allowed to subscribe. In the first issue, investors found subscriptions attractive and were able to get involved in the two-step process. However, in the second sales round in 1999 for Telstra 2, there were too many competitors in the market already and this deterred share price increases. Share prices in fact fell to a loss of $2.60.
The theoretical ex-rights price of a share TERP is defined in such situations as the Macarthur Coal Limited Situation where stock and right to stock are considered to be separate. The opening subscription price for shares was $1.20, but with the value associated with rights and theoretical ex-rights price, there is an observable difference. The difference exists because of the top-up facility where when some rights holders chose not to participate in rights offering, then these become available for issue to other shareholders who have already subscribed.
Proceeds are carefully planned and are going to be used for repayment (partially). Equity hence is used as a source of financing for additional interest in the Coppabella Mines. Other growth projects are financed.
Surplus are handled better with the top-up facility. By enabling eligible shareholders to participate in the top-up facility, Macarthur Coal Ltd ensures that they can buy additional shares on top of their subscription. Not all shareholders participate in buying all the shares, some of them would get the chance to sit out, and these shares would be bought by subscribers as add on’s to their subscription. No shareholder right is violated by this measure, and shareholders interested in buying additional shares are not constricted in their choices.
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