Selling new shares at a discount to existing shareholders mechanically dilutes the stock price — TERP is the standard estimate of exactly where that blended price should land.
How it works
Weighting the current share price by existing shares and the subscription price by new shares, then dividing by the combined total share count, gives TERP; subtracting the subscription price from TERP gives the value of each individual right.
What this does not include
This does not include the market’s actual reaction to a rights offering announcement, which can move the stock price for reasons beyond the pure dilution math (signaling effects, use-of-proceeds concerns, or existing shareholder sentiment about the offering itself).
How to use this calculator
- Enter current shares outstanding, current price, new shares offered, and the subscription price.
Frequently asked questions
What can a shareholder do with a “right”?
Typically either exercise it (buy new shares at the discounted subscription price) or sell it on the open market to another investor, since rights are usually transferable during the offering period.
Why is TERP only “theoretical”?
Because it’s a pre-offering estimate based on the current price and offering terms — the stock’s actual price once trading ex-rights can differ based on real market supply and demand at that time.
Does a shareholder lose value by not participating in a rights offering?
Not if they sell their rights — the value of the right itself is designed to compensate a non-participating shareholder for the dilution, assuming the rights trade at close to their theoretical value.
