Corporate Actions:
Key Terms and Concepts
A corporate action is any transaction undertaken by a company that impacts its existing stock or the way it’s traded. Most corporate actions are driven by the same desire: improving company performance and increasing shareholder value.
As many of the terms used to describe different corporate actions are used interchangeably, the details of corporate actions can be challenging to keep straight, even if you are an expert in corporate law or securities. EQ is here to help with this handy, interactive guide.
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Mergers and Acquisitions
1
Spin-Offs
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Tender Offers/
Exchange Offers
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Mandatory
Changes
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Reverse Morris Trusts
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Other Types of Corporate Actions
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What is a Transfer Agent?
To delve deeper into the details of corporate actions, including the reasons and steps for each, download our white paper, “Key Differences Between Corporate Actions.”
Consider the difference experienced transfer agents can make for your shareholders and your company’s critical transactions. Learn more about EQ Transfer Agent Services.
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1
Spin-Offs
A spin-off is the separation of a subsidiary or business unit from its parent company to create a wholly independent public company. The spun-off entity (SpinCo) retains its assets, employees and intellectual property. True spin-off: All shares of the new company/subsidiary are distributed to shareholders of the parent company.
Carve-out: This is a two-step spin-off. The subsidiary/business unit conducts an IPO with a certain percentage of the shares put into the IPO to be sold on the open market. The remaining shares (if any) are distributed to the parent company’s shareholders.
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Mergers and Acquisitions
Merger: When two or more companies agree to come together. All assets are combined.
Acquisition: The purchase of a company’s assets or stock by another company.
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Tender Offers/Exchange Offers
Tender offers: These are made directly to a company’s shareholders for their shares at a certain price and time by the company or by another company, private equity firm, etc. Hostile takeovers are usually conducted through a full tender offer.
Full tender: When there is an attempt to purchase all the shares of a company.
Odd-lot tender: An offer made to shareholders that own less than 100 shares.
Exchange offers: Shares are paid for with securities instead of cash, whether as shares of a different class of stock or another company’s stock or bonds.
Partial tender: An offer made by the company to buy back a limited number of its outstanding shares (i.e., set to go into effect whenever the stock goes down to a pre-determined price or net asset valuation).
Dutch auction: When the company buys back its shares by offering a price range rather than a specific price.
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Mandatory Changes
A mandatory exchange requires shareholders to exchange their shares for new shares or new shares plus other assets, such as cash.
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Reverse Morris Trusts
This multi-step transaction combines a spin-off with a prearranged merger, allowing a company to sell an asset tax-free. After the spin-off, the SpinCo is immediately acquired by a smaller publicly traded company. The size difference is key because as long as the transaction is structured so that the parent-company shareholders own the majority of the stock in the newly merged company, the IRS considers the transaction tax-free to the parent company.
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Other Types of Corporate Actions
Stock split: In an effort to reduce the price per share of its stock and make it more accessible for the average investor, a company issues a predetermined number of new shares for every share owned by the shareholder.
Bonus issue: Additional shares of stock are issued and distributed free to shareholders instead of a cash dividend. A bonus issue increases the number of shares outstanding. It is also known
as a “scrip issue” or “capitalization issue.”
Rights issue: An offer is extended to existing shareholders to buy newly issued shares not offered on the open market. The company can use a rights issue to raise capital directly from its shareholders.
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What is a Transfer Agent?
Most companies rely heavily on their legal advisors to guide them through a corporate action, but they may not always be familiar with the trading or settlement aspect. That’s where a transfer agent comes in. Transfer agents are specialists in securities and are knowledgeable about the DTC settlement process, ensuring compliance with required deadlines.
In a simple transaction, the transfer agent usually handles the entire process. For more complex transactions, their team of experts will work with the company’s legal counsel, underwriter and other advisors.
An effective corporate actions team will advise companies as to what is or isn’t possible, the timing needed to accomplish each step and all the pieces that need to come together to make the transaction happen.
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EQ are specialists in helping you better understand and manage the ownership of your company through critical events across the corporate lifecycle. As trusted advisors, we provide strategic insight and operations expertise through our core business units in Private Company Services, Transfer Agent Services, Employee Plan Solutions, Proxy Services, and Bankruptcy. Globally we serve 6,700 clients (49% of the FTSE 100 UK and 35% of the S&P 500), with over 40 million shareholders, through 6,500 employees in
5 markets around the world.
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© 2024 Equiniti Trust Company, LLC
All rights reserved. Transfer Agent, employee plan administration, trustee and other services requiring trust powers are offered through Equiniti Trust Company, LLC.
equiniti.com/us/public/transfer-agent-services | equiniti.com/us/contact-us | About Equiniti
EQ are specialists in helping you better understand and manage the ownership of your company through critical events across the corporate lifecycle. As trusted advisors, we provide strategic insight and operations expertise through our core business units in Private Company Services, Transfer Agent Services, Employee Plan Solutions, Proxy Services, and Bankruptcy. Globally we serve 6,700 clients (49% of the FTSE 100 UK and 35% of the S&P 500), with over 40 million shareholders, through 6,500 employees in
5 markets around the world.
Corporate Actions:
Key Terms and Concepts
equiniti.com/us/contact-us About Equiniti © 2024 Equiniti Trust Company, LLC
All rights reserved. Transfer Agent, employee plan administration, trustee and other services requiring trust powers are offered through Equiniti Trust Company, LLC.