America Can Teach Europe a Lesson on Corporate Fundraising
Jumbo share sales, like Orsted’s, are designed to be fair in the UK and Europe, but they’re slow and disruptive.
An Orsted-built wind farm off the coast of Denmark.
Photographer: THOMAS TRAASDAHL/AFPWhen US companies want to sell a large pile of new shares to fund an investment, no one stands in the way. In Europe, regulation erects a roadblock in the name of shareholder rights. Companies must do a “rights offer” like the 60 billion kroner ($9.4 billion) fundraising Denmark’s Orsted A/S has embarked upon. Such sales do deliver fairness — but at a cost.
The thinking in London and Europe is that existing shareholders deserve first refusal on any offer of additional stock. After all, new shares are usually pitched at a discount (because you’re trying to stimulate abnormal demand.) If outsiders bought, the owners would surrender some value. Hence current shareholders get “preemption rights” to buy the cheap stock.