What can result if a Rights Offering option is not exercised?

In a Rights Offering, existing shareholders are given the opportunity to purchase additional shares at a set price, typically lower than the current market price, in proportion to their existing holdings. If a shareholder chooses not to exercise this option, their ownership percentage in the company can diminish. This occurs because the total number of shares outstanding increases as new shares are sold to other investors who participate in the Rights Offering.

As more shares become available on the market and more ownership stakes are diluted among a larger pool of shareholders, the percentage of the company owned by those who did not participate decreases. This dilution can lead to a reduction in control and potentially in the value of their existing shares. Thus, not exercising a Rights Offering can directly lead to ownership dilution for those shareholders who abstain from purchasing the offered shares. This is why the consequence specifically highlights the impact on existing shareholders when they opt not to participate.