15. Types of securities.

Security – a certificate attesting credit, the ownership of stocks and bonds, or the right to ownership connected with tradable derivatives.

Stock is used to refer to all kinds of securities, including government bonds. The word equity or equities is also used to describe stocks and shares. The places where the stocks and shares of listed or quoted companies are bought and sold are called stock markets or stock exchanges.

Shares are certificates representing part ownership of the company. Ownership in a company is divided among stakeholders or shareholders. The original shareholders are the people who started the business, but now they have sold shares of the profits to outsiders.

For public companies the shares or stocks can be resold on the stock exchange to anyone prepared to pay the going price. Even the largest company occasionally needs to issue additional new shares to raise money for especially large projects. To buy into the company, a shareholder must purchase shares on the stock exchange.

If the company suffers a loss or goes bankrupt then the shareholders can lose only the money they originally spent buying shares.There are common or ordinary shares, and preference shares or preferred stock. Holders of preference shares receive a fixed dividend that must be paid before holders of ordinary shares receive a dividend. Holders of preferrence shares have more chance of getting some of their capital back in the case of bankruptcy, they are repaid before other shareholders, but after owners of bonds and other debts.

Security indicates either an ownership position in a corporation (a stock), or a creditor relationship with a corporation or a governmental body (a bond), or rights to ownership, such as hose, represented by option, subscription right or warrant. Thus, bonds guarantee to repay their face value after a certain number of years and pay a fixed rate of interest to the bond-holder in the meantime.

The price written on the share, the nominal value, is hardly ever the same as the price it is currently being traded on the stock exchange. The market price depends on supply and demand and can change every minute during trading hours. Trades in stocks quote bid (buying) and offer (selling) prices. The spread or difference between these prices is their profit.

Another type of securities is option – actually, it’s a contract giving the holder a right to buy a designated security (this is a call option) or sell it (this is a put option) at or within a certain period of time at a specified price. In a number of companies apart from salary an executive’s compensation package can include share options, the right to buy the company’s share at an advantegous price. It’s a kind of benefits or perks.

16. Mergers, takeovers & acquisitions

A threat that company can be taken over keeps the managements on their toes. An attempt to get control of a public limited company may be carries out by purchasing, or offering to purchase, the whole or part of the ordinary shares. And the price is usually well in excess of their quoted price.

Moreover, a takeover or acquisition happens when a company offers to buy all the shareholders’ shares at a certain price, usually higher than the market price, during a limited period of time. It called a takeover bid.

Another situation, called raid happens when a company tries to buy as many shares as possible on the stock market, hoping to gain a majority.

Keep in mind, if a company’s Board of Directors agrees to takeover, and the shareholders agree to sell it, a friendly takeover exists. On the contrary, attempts to acquire companies in the face of opposition from existing management are called hostile takeovers. Opponents of hostile takeovers claim these takeovers aren’t in the long-run interest cause they sell off assets to pay for the acquisition and cut back on research and development.

It’s a matter of fact, that there are various ways of defending themselves against a hostile bid. For instance, they can try to find another company that they prefer to be bought by. Sometimes the companies choose issuing new shares at a big discount that makes the takeover much more costly. Another method is a proxy fight, when a group of outsiders try to gain control of a company by persuading existing shareholders to vote into office a new team of directors.