Question

What is a preemptive right as it relates to common stock? Which investor would value preemptive rights more, Benjamin Solowitz who owns .0001% of the shares of XYZ Inc., or Carl Icahn who owns 50.1% of the shares of XYZ Inc.? Why?

Answer 1

Answer: Preemptive rights provide the holder the rights to maintain his or her ownership in the company constant by buying a proportionate number of shares in any future issue of the Security by the Company.

Carl Icahn would value the preemptive rights more reason being he holds 50.1% in the Company, which is majority shareholding and provides discretionary rights to him in Company decision making, being a majority shareholder.

If it goes below 50% he will lose majority shareholding impacting his powers that's hwy he need them more so that he is able to maintain his majority shareholding.

On the other hand Benjamin who owns 0.0001% wont be interested much in preemptive rights as it does not effect his position much in terms of power.

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