A public option that is issued by one seller and potentially purchased by many investors at a specific, within a certain time frame. It is typically documented as a freely transferable security that is settled through a recognized clearing system, and often listed on a stock exchange. More specifically, this “equity-kicker” security gives the warrant holder the right to purchase equity, directly or though conversion. At a firm’s level, warrants are usually expressed as a percentage of the “fully-diluted” common stock, which then equates to a specific number of common equity shares.
Warrants are not only issued by companies on their own stocks, but also as a sweetener to a debt issue or gratis (offered free) in a stock split. In this respect, warrants help companies raise more equity at a higher price in the future.
Warrants can also be issued on any unrelated security (hence the name synthetic warrants). For example, a company could sell warrants giving buyers the right to purchase shares in another company.
In general, warrants can be classified as equity warrants and debt warrants.
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