Treasury Offering

A treasury offering occurs when a firm sells all or a portion of its own treasury stock to investors in the open market. Treasury stock are shares of stock that a publicly traded company registered for sale with the Securities and Exchange Commission ("SEC") but did not actually sell to the public. Treasury stock also refers to shares of stock that the company bought back from shareholders and now hold internally.

Treasury offerings with treasury stock are unlike common stock or preferred stock shares that are marked as outstanding in the company's financial statements. Treasury stock is not considered outstanding, so it is not used to calculate dividends or earnings per share. However, even though treasury stock is not issued, investor awareness of the existence of these shares can affect market sentiment and activity around the firm's publicly traded shares.

Treasury offerings are undertaken as a way for a firm to raise capital for new projects or investments. This method of raising money is generally less expensive than other methods, such as issuing new common shares or preferred shares, which involve engaging an investment bank and additional filings with the SEC. Treasury offerings also allow the company to avoid issuing debt to raise capital, which may be particularly troublesome and expensive during a downturn in the business cycle or during a period of generally high interest rates. By issuing a treasury offering of stock already owned, the company does not incur additional costs to create shares.

Treasury offerings are particularly accretive when the firm's shares are trading at historically high valuations. However, much as investors keep a close eye on the trading activity in the firm's stock undertaken by firm executives and insiders, the company's treasury offering may be taken by investors as a sign that the company's outlook for the future is not altogether positive, and it is looking to sell shares now while the market price is high. Additionally, treasury offerings cause dilution for existing shareholders. The treasury stock sold in a treasury offering is now considered outstanding and entitled to the same pro-rated amount of earnings and dividends as all other shareholders. Now, the company's earnings and dividends must be divided among a greater number of shares, which results in a smaller claim on those earnings and dividends for investors who held shares prior to the treasury offering. This is referred to as the dilution of existing shareholders.