Overallotment

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Dictionary Says

Definition of 'Overallotment'

An option commonly available to underwriters that allows the sale of additional shares that a company plans to issue in an initial public offering or secondary/follow-on offering. An overallotment option allows underwriters to issue as many as 15% more shares than originally planned. The option can be exercised within 30 days of the offering, and it does not have to be exercised on the same day.

Also called a "greenshoe option".
Investopedia Says

Investopedia explains 'Overallotment'

The underwriters of such an offering may elect to exercise the overallotment option when demand for shares is high and shares are trading above the offering price. This scenario allows the issuing company to raise additional capital.

Other times, the purpose of issuing extra shares is to stabilize the price of the stock and prevent it from going below the offering price. If the stock price drops below the offering price, the underwriters can buy back some of the shares for less than they were sold for, decreasing the supply and hopefully increasing the price. If the stock rises above the offering price, the overallotment agreement allows the underwriters to buy back the excess shares at the offering price, so that they don't lose money.

Search results for

'Overallotment'

  • What To Expect From The Zynga IPO - Investopedia.com

    http://financialedge.investopedia.com/financial-edge/1211/What-To-Expect-From-The-Zynga-IPO.aspx
    ... According to the company's IPO road show presentation to investors, it will
    offer 100 million shares with a possible 15% overallotment. ...

  • Oil-Focused Energy Stocks Continue Capital Spree

    http://stocks.investopedia.com/stock-analysis/2011/Oil-Focused-Energy-Stocks-Continue-Capital-Spree-KOG-LINE-CRZO-CXO0105.aspx
    ... The underwriters exercised the full overallotment on the offering of an additional
    3.75 million shares, yielding net proceeds to Kodiak Oil and Gas of $149.4 ...

  • Is It Time To Buy EMC?

    http://stocks.investopedia.com/stock-analysis/2008/Is-It-Time-To-Buy-EMC-EMC-VMW-IBM1028.aspx
    ... Its IPO raised close to $1 billion, selling 33 million shares at $29 with an
    overallotment of 4.95 million additional shares, which the underwriters exercised. ...

  • Should You invest in American Capital's Lesser Known Affiliate?

    http://stocks.investopedia.com/stock-analysis/2011/Should-You-invest-in-American-Capitals-Lesser-Known-Affiliate-AGNC-ACAP-FMCC-FNMA0323.aspx
    ... prices. It will be interesting to see if the underwriters exercise their
    overallotment of four million shares. Stay tuned. Pros ...

  • IPO Fog Lifts From Hhgregg

    http://stocks.investopedia.com/stock-analysis/2008/IPO_Fog_Lifts_From_Hhgregg_HGG.aspx
    ... 21.5%. One month later, Freeman sold an additional 1.15 million shares
    as part of an overallotment agreement in the IPO offering. ...

  • The Rise Of The Modern Investment Bank

    http://www.investopedia.com/articles/08/investment-banks.asp
    ... If they succeed, they will exercise a 15% overallotment option, called a greenshoe,
    which is named after the Green Shoe Company, the first issuer of such an ...

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