RIGHTS issues have become something of a rarity in the past couple of years, with low interest rates making debt finance often a more attractive proposition when companies want to fund expansion.
Even when companies do raise equity, usually it involves a placing or a combination of placing and open offer. For those reasons alone, it was refreshing to see United Drug turn to its shareholders for fresh funds and at least give those shareholders the opportunity of not being diluted.
But the United Drug rights issue does raise a couple of questions that need to be addressed. The first of these is whether a company with a gearing of no more than 40 per cent actually needs to raise money for acquisitions it has yet to make.
The second question is whether United Drug really needed to offer the new shares at a 19 per cent discount to the market price and also have the entire issue underwritten by Davy stockbrokers.
Some observers believe that United Drug could simply have priced the underwritten share issue at a less attractive discount to the market price or else gone for a deeply discounted rights issue without any underwriting, as companies like Bank of Ireland have done in the past.
United Drug management understandably wants to be sure to get its money in - and if a 2 per cent underwriting commission ensures that goal, then so be it. The company's shareholders really should support this rights issue, given the generosity of the price. But a high take-up of the rights issue means the underwriters will pick up commissions of more than £250,000 for not an awful lot of risk. That sounds like an exceptionally good deal for the underwriters. Whether it is as good a deal for United Drug is another matter.
Elsewhere, it was a generally dull week with the recent pattern of heavy demand for financial stocks being maintained. Both big banks recovered from some recent weakness while Irish Life the focus of huge demand in recent weeks remained steadily bid around its all-time high. With gilt yields firming and the resumption of convergence trading seen as inevitable, financial stocks should remain in solid demand between now and the end of the year.
CRH suffered from the sector's adverse reaction to the Redland profit warning, but found support at around 600p. Redland warned about lower fourth-quarter earnings from its European operations - particularly in Germany.
Anglo Irish Bankcorp share-holders will no doubt be relieved to hear they won't be tapped for funds for the next few years. Anglo has in the past been accused of opportunism by launching rights issues without having any obvious need for the money.
Those shareholders who kept their trust in Nelson Loane when Adare announced earlier this year that its Mount Salus subsidiary had lost a key Microsoft contract have been well rewarded. At that time, Adare share slumped to 450p. Now, with excellent half-year results under its belt, Adare shares have recovered to 575p.
