What is often the result of a Rights Offering if shareholders do not exercise the option?

In a Rights Offering, existing shareholders are given the opportunity to purchase additional shares at a predetermined price, usually at a discount to the current market price. If shareholders choose not to exercise this option, they will end up owning a smaller percentage of the company relative to those who do participate in the offering. This situation leads to ownership dilution for those who opt not to buy additional shares, as the total number of outstanding shares increases while their individual ownership stake remains the same or decreases.

This dilution occurs because the new shares issued will increase the total equity base of the company. As a result, each existing share now represents a smaller fraction of the company's overall equity. Consequently, those who did not participate in the Rights Offering will see their percentage ownership and potentially influence over future company decisions decrease, leading to dilution of their ownership stake. This concept is critical in understanding how capital raising activities can affect shareholder value and ownership structures.