Transferable Put Right

Transferable put right

An option issued by a firm to its shareholders to sell the firm one share of its common stock at a fixed price (the strike price) within a stated period (the time to maturity). The put right is "transferable" because it can be traded in the capital markets.

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transferable put right

An option granted by a corporation to its shareholders that permits the shareholders to sell stock at a stipulated price back to the corporation. Shareholders who do not wish to exercise the options are permitted to sell the put rights to other investors. Issuing transferable put rights is an alternative to a tender offer or open market purchases as a form of share repurchase.

Case Study In August 1988 Gillette Corporation announced the firm would issue transferable put rights in order to carry out the repurchase of a substantial amount of its common stock. The put rights were issued to Gillette shareholders of record as of August 12, 1988, and could be used to sell stock back to the company at $45 per share until September 19 of the same year. Gillette stock was trading for slightly less than $40 per share on the New York Stock Exchange at the time of the put issue. The right to sell shares back to the company for more than market price caused the puts to have substantial value on the date they were issued. The put rights were issued as part of a settlement with Coniston Partners, a firm that had initiated a proxy fight with Gillette. Gillette issued one put for each seven of its 112 million outstanding shares. Under the plan a shareholder with 1,000 Gillette shares received 143 puts (one for each seven shares owned) that permitted the shareholder to sell 143 shares for $45 each back to the firm. Alternatively, the shareholder could choose to sell the actively traded puts to another investor.

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Transferable Put Right

An option contract that a publicly-traded company issues to a shareholder giving the shareholder the right but not the obligation to sell his/her shares back to the company at a certain strike price on or before the contract?s expiration date. A transferable put right protects the shareholder from the possibility that the share price will drop precipitously, resulting in a massive loss. However, the right increases the company's risk that it may have to honor the exercise of a number of options at a high price, resulting in financial difficulty.