A tombstone is a written advertisement of a public offering, placed by investment bankers who are underwriting the issue. It includes basic details about the issue and lists each of the underwriting groups involved in the deal. The tombstone provides investors with general information and directs prospective investors to a link where they can obtain a prospectus.
Key Highlights
- A tombstone is a written advertisement that provides investors with basic details about an upcoming public offering.
- A public offering is when a company offers to sell equity shares in the company to raise money.
- The Securities and Exchange Commission (SEC) mandates companies to publish advertisements as part of the disclosure requirements before issuing new shares of stock.
- Tombstone ads describe the type and number of securities offered, how they can be purchased, the availability date, the security’s credit rating, and the names of the syndicate members authorized to sell the security.
- The name “tombstone” comes from the black border and heavy black type typically seen on these print advertisements, which some say resemble a gravestone marker.
The Mechanics of a Tombstone Ad
To raise money, a company’s management may sell equity shares through a public offering. A tombstone is one of the disclosure requirements for security offerings required by the SEC. It’s essentially an announcement that securities are available for sale.
Tombstone Ad vs. Prospectus
While a tombstone ad is a brief announcement to alert investors of the upcoming security sale, a prospectus goes into greater detail and provides investors with the information needed to make an informed investing decision. The SEC requires a prospectus for all investors when a company issues securities to the public, whether it be an initial public offering (IPO) or a seasoned issue. A seasoned issue, also known as a secondary offering, is when an established company that already trades on the stock exchange issues new shares of stock for sale. All secondary offerings are sold using a prospectus and include similar tombstone advertising.
The preliminary prospectus, used to gauge market interest, doesn’t include price information, whereas the final prospectus does.
The Role of Underwriters
Underwriters manage the legal and accounting process of creating a prospectus. This document contains the issuer’s most recent set of audited financial statements and legal opinions about any pending legal matters. The prospectus delves into the firm’s marketing, production, and sales processes and explains why the company is raising more capital. In addition to the underwriters, other syndicate members might be involved in selling the securities to their customers. The underwriter’s sales force also plays a role in selling the newly issued securities.
What You’ll Find in a Tombstone Ad
A tombstone ad details the types of securities offered, the date they are available, the number of shares or bonds to be sold, and how the securities can be purchased. If a new debt security receives a credit rating, that rating may be included in the ad.
The name “tombstone” stems from the black border and heavy black print typically seen in these print advertisements. The ad lists the syndicate members involved in underwriting the security, with the primary members displayed prominently at the top. A syndicate member’s ranking on the tombstone reflects their level of involvement and the percentage of the total issue they are selling to the public. If listed at the top, it can bolster the syndicate firm’s market expertise and attractiveness to other potential issuers.
Related Terms: Prospectus, Stock offering, IPO, Seasoned issue, Underwriter.
