What is Assimilation?
Assimilation refers to the absorption by the public of a new or secondary stock issuance after the underwriter has acquired it. Consider that a company offers shares of its stock for public sale, either through an Initial Public Offering (IPO) or through a secondary offer. The shares will be assigned first to one or more underwriters. It is, then, the responsibility of the underwriters to sell the shares to the general public.
Understanding Assimilation
A company issues shares, and it is often bought by an underwriter. The underwriter is now obligated to sell the shares to the public and to assimilate those shares. Once the underwriter has sold all the shares, the stock is regarded as being absorbed.
Once an investor owns the new shares, they are traded like any other asset on the secondary market. A well-known company that sets a fair share price will have a greater chance of seeing its new shares assimilated quickly.
In the case of lack of assimilation, it is a sign that investors don't trust the company, or think it has overvalued its stock. A lack of assimilation can sometimes result from buyers not being fully aware of the stock bid, which would suggest a mistake on the part of the underwriters.
If more shares are issued by a corporation, the new shares will be merged into existing shares. The new shares, bearing the same rights and entitlements as the initial ones, will be different from the present. If an IPO, the shares will provide the rights and entitlements that the issuing company gives.
In the case of a secondary bid where the shares are not the same as previously issued shares, such as offering Class B shares instead of Class A shares, the rights and entitlements vary from the class of previously issued shares. One class, for example, may not hold voting rights. The underwriter's aim is to assimilate the shares, no matter what type of share issuance it is.
