Financial Stocks/subscription rights
QUESTION: on April 5/2013, Cache inc (symbol cach) distributed to shareholders subscription rights under the symbol CACHR. These kept on trading until April 25/2013, the date of expiration. As the subscription right was always cheaper than the underlying stock, cachr was always traded. I was not aware of the expiration and did not sell my cachr. My broker (I reside outside US)claims that there is nothing to do and that I just lost them.I contacted the investor relations dept and the answer was the same.It does not make sense since this is like an option expiring in the money, so how can it become worthless as of 5 pm April 25? Please advise and help! Thank you so much for your time.
ANSWER: Thank you Tony for the question!
While it can vary depending on the exact nature of a subscription offering like this, it is normal for it to expire. Here is a link for more information:
What Cache did was extend to you as a current shareholder the right to buy stock at a reduced rate. That right to buy that stock had a time limit, so if you did not actually make use of this and perform a transaction to buy the stock at the reduced rate, then yes it would be absolutely normal for this subscription right to expire on an established date.
If you have previously purchased stock under the subscription right, I don't believe those should expire, only the right to purchase more of the cachr up to the amount that was allocated to you. Once you perform the option to purchase cachr at the lower stock price, you then own it. I believe what has expired is the option to purchase more of the stock at reduced price under the subscription right.
The complexity is that the subscription right itself can be traded. CACHR is the subscription right itself, not really the stock. It can be bought and sold to other investors. So for example, if you did not want to purchase the stock at the reduced rate, in other words if you did not want to execute your subscription right, you could have sold that right to someone else. Then the buyer of your subscription rights would be able to execute the subscription right to buy the stock at the lower rate. Yes, this definitely expires and never continues on after a preset date that should be listed in the documentation. If this is your situation, unfortunately I think that the information you received from your broker and from the company is correct.
I hope this helps, please do not hesitate to reply if I can offer anything additional.
---------- FOLLOW-UP ----------
QUESTION: Thank you so much. I am aware of the info presented in your detailed eloquent answer. Yet, One cannot conceive that the right to purchase with a reduced price (traded under CACHR) can go from $2.0 for example to zero at 5 pm without anybody taking advantage and exercising (or selling) it.
1. Can one track my rights? or check if all offered rights were indeed exercised?
2. As I am residing outsideUS (the prospectus states that stock holders outside US will not be mailed or notified) , isn,t it the responsibility of the custodian firm that deals with my local broker to bring our attention to expiration date ? I was never aware of expiration until the symbol CACHR suddenly disappeared from my portfolio.
Thank you for the follow up question!
I believe that only you can exercise the right to buy the stock at the reduced rate, so if you did not execute on that, then they would have simply expired without being executed. If you would like to find out how many rights in total you were granted and therefore expired before you could act, I think that CACH investor relations department would be the one to ask.
I am not certain regarding the obligation of your local broker or custodian firm to inform you of the expiration date. It would not surprise me at all if there was no requirement, particularly since you reside outside the US. It is very true that these types of rights are definitely not very investor friendly! You will most likely find that the custodian firm and broker did not have an obligation to inform you (they themselves may not have been aware, as the entire thing is highly automated). In other cases of stock sales and purchases yes, the custodian firm and your broker have requirements. But I don't believe that sort of responsibility and regulation applies to this sort of right.
However, I don't have access to the documents, and everything should be in there. The investor relations department from CACH should have an offering document that outlines the entire terms of the rights offering. Whatever is in there is the answer. The argument that you were never provided a copy probably won't get far, I don't think they are required to get you a copy, only to have it available (finance is hardly ever logical!)
The problem is that it is not really an offering of stock, only an offering to buy existing stock at a lower rate. So this would not be as highly regulated as a normal stock transaction.
I do wish you the best, I have been there before, and know that CACH will put the responsibility on your broker or you, and your broker will put the blame on CACH. Everyone points fingers at everyone else. The argument you make is a morally correct one: you should have been informed. But I don't think that regulations require it, I would suggest that CACH is the one most responsible for this. They could have chosen to communicate with investors more effectively, even it is not legally required. There is little that I think your broker could have done.
So I think this is a good example of the confusing world of investing we live in, where the investor is always left with the empty pockets, and the institutions and professionals don't act responsibly, but do act according to law. There is a huge amount of legislation and regulation out there to try to force institutions and professionals to act more responsibly, but there are so many holes and the system is so complex, it rarely works correctly with things like this. I am sorry I don't have better news for you!
I would add that I am not a financial attorney, so the above is just how I understand it. But I could be wrong. If a large sum is at stake here, it would be advisable to at least consult an attorney that specializes in security transactions.