What Is a Tombstone?
Let me explain what a tombstone is in the context of finance. It's a written advertisement for a public offering, placed by the investment bankers underwriting the issue. This ad gives you basic details about the offering and lists all the underwriting groups involved. As an investor, you'll find general information here, and it directs you to a link where you can get the full prospectus.
Key Takeaways
You should know that a tombstone is essentially a written ad providing basic details on an upcoming public offering. Remember, a public offering happens when a company sells equity shares to raise money. The SEC requires these ads as part of disclosure rules before new shares are issued. In the tombstone, you'll see the type and number of securities offered, how to buy them, the availability date, the security's credit rating, and the names of syndicate members authorized to sell. The name 'tombstone' comes from the black border and heavy black type in print versions, which some say looks like a gravestone marker.
How a Tombstone Works
When a company needs to raise money, its management can sell equity shares via a public offering. A tombstone is part of the SEC's required disclosures for these security offerings. It's straightforward: the tombstone announces that securities are available for sale. That's its main function—letting you know what's coming to market.
Tombstone Ad vs. Prospectus
Understand the difference here. A tombstone ad is just a brief announcement alerting you to an upcoming security sale. In contrast, a prospectus dives deeper, giving you the details needed to decide on investing. The SEC requires that every investor gets a prospectus when a company issues securities publicly. This applies to initial public offerings (IPOs), which are the first time a company sells securities to the public. It also covers seasoned issues, or secondary offerings, where an established company already trading on the exchange issues new shares. For secondary offerings, the tombstone goes to current security owners, and all such offerings use a prospectus.
Important Note on Prospectuses
Here's something key: the preliminary prospectus lacks price information but helps gauge market interest in the proposed security. The final prospectus, however, includes the price and the number of shares the company will sell.
The Role of Underwriters
Underwriters manage the legal and accounting side of creating a prospectus. This document includes the issuer's latest audited financial statements and a legal opinion on any pending matters. The prospectus details the firm's marketing, production, and sales processes, explaining why more capital is being raised. Beyond the main underwriters, a syndicate of other members might join to sell the securities to their clients. The underwriter's own sales force also handles selling these new issues.
Examples of Tombstone Information
In a tombstone, you'll find descriptions of the securities offered, their availability date, the number of shares or bonds for sale, and how to purchase them. If it's a new debt security with a credit rating, that rating appears too. The ad's name comes from its typical black border and heavy print in media, resembling a tombstone. It lists syndicate members involved in underwriting, with primary ones in larger type at the top. A member's position reflects their work on the offering and the percentage of the issue their firm sells. If a member tops the list for a popular stock issuer, that boosts their marketing to other companies.
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