More on Warrants (2)
November 29, 2008 – 12:10 pmAlso, it should be noted that XYZ Company is not issuing warrants for the sake of being nice. As noted in the previous example, companies typically issue stock because they are relatively young and/or may have a difficult time otherwise attracting new investors. Since warrants are almost always issued at a higher purchase price than what the stock is currently selling for, the company and the recipients of those warrants are all betting that the price of the stock will rise. Many times, those recipients are other companies or are brokerage houses, because companies often will pay each other off through the transfer of warrants. As in the example when no actual stock changed hands, these brokerage houses and companies will then sell the warrants to individual investors in order to raise cash without having to make a capital investment of their own, or with only a minimal one. In addition, this action effectively launches the warrants onto the common market for everyone to buy and sell.
