True, there is a bit more to it than that. Charles Taylor does not need shareholders' approval because in effect it already has it. As is now normal, its directors used a resolution at its annual meeting to suspend the exclusive right of shareholders to authorise the issue of new shares (so-called 'pre-emption rights'). That meant Charles Taylor could raise new equity so long as it did not increase its shares in issue by more than two thirds. Its three-for-seven issue (at 155p per new share) fell comfortably within that limit.
The 'price' that Taylor's directors have to pay for issuing stock this way is that all nine will have to put themselves up for re-election at the next annual meeting. But, on the basis that the bosses are pursuing a plan that shareholders approve of, re-election should be a formality.
That said, shareholders' approval is really only tacit. Taylor, which does everything from running mutual insurance schemes to providing loss-adjusting services, has a newish chief executive, David Marock, who joined in July 2011. Mr Marock is still being allowed latitude after the group's performance in practice repeatedly failed to match the elegant theory of its business model - a shortcoming that eventually meant the departure of his predecessor was predictable.
On one interpretation, under the new boss the signs are encouraging. Earnings from continuing operations have almost doubled from 4.6p in the first set of results under Mr Marock's watch to 8.4p in 2014. The share price has done much the same - up from 135p just before he was appointed to 295p cum rights last week (the shares are now trading ex rights). However, that first set of results was given the 'big bath' accounting treatment and earnings from continuing operations are still well short of the 11.9p that Taylor produced in 2009. Similarly, Taylor's share price remains far short of the 422p all-time high it hit in 2006.
Still, Taylor has sweetened its shareholders with a second dividend for 2014 that's 11 per cent higher than 2013's final payment and is the first increase since the pay-out was cut by a third in 2010. And it has enticed them with the prospect of using at least a chunk of the rights proceeds to acquire a life insurance operation; presumably, one in run-off that can use Taylor's systems.
Disappointingly, however, the upbeat story is accompanied by a rights price at a familiarly deep discount to the market price. So investors face the usual threat when an investee company has a rights issue: cough up or suffer a compulsory part disposal. In this case the choice is between effectively selling up to 13 per cent of an investor's holding or raising the commitment by 24 per cent. That's a fairly substantial addition to be based on little more than hopes, intentions and an iffy track record.
It could be worse. Shareholders in Serco face the choice between selling up to 26 per cent of their holding or adding to it by 49 per cent. At least they get a vote on the rights issue. True, Serco's directors have a pre-emption waiver, but the size of the company's rights issue means they need specific approval to issue the new stock.
That they will get it is not in doubt. Apart from the fact that the issue is underwritten, the ground has been well prepared. Late last year Serco's new boss, Rupert Soames, warned that a rights issue was coming and his track record at temporary power-supply provider Aggreko (AGK) means he will be backed big time. Yet the worry is that, in taking Serco's top job, Mr Soames will simply prove up The Great Buffett's dictum that "when management with a reputation for brilliance tackles a business with a reputation for poor fundamental economics, it is the reputation of the business that remains intact".
Certainly Serco's decision to focus on providing labour-intensive low added-value services to the public sector looks like a sentence to a grinding process of fighting continual pressure on profit margins; and it will do this without the pricing power that could keep customers compliant or competitors at bay. True, its core market - providing services for prisons, immigration controls and healthcare - may grow decently for some years, as Serco's bosses expect. Equally, there may be some recovery in the share price; after all, at 187p, the price is 71 per cent below the all-time high it hit almost 14 years ago. That said, it's hard to imagine Serco will ever again be a growth stock and - in the absence of dividend payments - it is some years away from being an income stock.
You can guess that I wouldn't take up Serco's new shares; maybe I'd sell enough of the rights to maintain my stake, but no more. Ditto Charles Taylor. That's usually how it should be with a rights issue - if you would not buy the old shares, then don't invest in the new ones.
