What will happen when Company introduce new stocks to the market?

Hello,

Let say that a company decide to introduce new series of stocks to the market. The value of a single stock will fall.

Does anybody knows what will happen if I have these stocks on my broker account? Does Broker inform You about additional 'publications' of new stock? Do You have a right to buy appropriate proportion of the new series first ?
I am specially intrested how does it go on the Interactive Brokers platform.

Thanks for help.

The initial public offering is the first time stock is issued. Typically only buy-side firms such as private equity and large funds are allowed to purchase these shares.

When new shares are issued, this is a problem for existing shareholders for two reasons:

1. Dilution. When more stock is in the float, or outstanding shares, the value per share drops which leads to a drop in share price.

2. Signaling. A company's first choice when raising new funds should come from debt. A relatively high level of debt shows that a company can be trusted to pay back their debts and that they are fiscally sound. When new stock is issued, it shows that the company is not financially prepared to assume new liabilities.

For these two reasons, the issuance of stock causes a company's stock price to drop.

Typically the company will just sell all of their newly-issued shares to an investment bank or broker-dealer who will gradually sell these shares to the public, hopefully at a significant profit. So, a small, retail trader can more than likely not acquire these shares.

Thank You for the answer,

I though there is some kind of law that obligate the company to sell their new series of stocks to the investors that already hold that companys stock at first and than to the other people.

In that case it seems it is totally unfair for small inestors because of the dilution. Just like You wrote.

In extreme theory:

Let say company know about some great, superb contract that will double value of the stock.
a) Before the fantastic event, company produce the same amount of stocks that will be bought only to the 'people that know about an event'.
b) Company produce the stockt and dilute the value of single stock by two.
c) After an event stocks values double so that: 'people who know double the value of the stocks', rest of investors do not earn nothing.

Am I right in extreme theory?

Greetings