A corporate action occurs when a company makes changes to its issued shares or structure. These events are typically approved by the company's board of directors and authorised by its shareholders.
NB: Corporate action events apply only to live accounts on EasyEquities, not DEMO accounts.
Here are some common types of corporate actions (expand each tile for more info):
A company may change its registered name, which could be part of a rebranding or restructuring effort. Depending on the circumstances, the stock exchange might treat the name change as a delisting followed by a new listing.
When a company shares its profits with shareholders, it may issue dividends, which are payments made in cash. While issuing dividends is not compulsory, companies known for regular dividend payments can be attractive to investors seeking consistent returns.
Instead of giving out cash, a company might reward its shareholders with more shares. This is a share dividend. It’s like getting extra slices of the same pie you already own a part of.
A Dividend Reinvestment Plan (DRIP) allows shareholders to automatically reinvest their cash dividends into additional shares of the same company, often without paying brokerage fees. This is a cost-effective way to grow your investment.
A share split occurs when a company increases the number of its outstanding shares (i.e. shares in the market) by dividing existing shares, increasing liquidity and making the stock more accessible. Conversely, a share consolidation (or reverse stock split) reduces the number of outstanding shares, often to increase the share price or consolidate the shareholder base.
Impact on Shareholders: In a share split, shareholders receive more shares, though the total value of their investment remains the same. In a consolidation/reverse stock split, they hold fewer shares, but each is worth more, maintaining the total investment value.
A rights offer gives existing shareholders the opportunity to buy additional shares at a discounted price. This helps the company raise additional capital while giving shareholders a chance to increase their ownership stake.
Impact on Shareholders: Shareholders can buy more shares, often at a discount, but they may also face dilution if they choose not to participate.
A parent company may decide that one of its departments should be its own independent company. They "spin off" that department (like cutting off a branch of a big tree and planting it as a new tree), giving shareholders new shares in this new company. It’s like getting a bonus stock in a brand-new business.
This happens when a company separates one or more of its subsidiaries and gives shareholders shares or cash in the newly independent entity. Shareholders might have the option to choose between receiving shares or cash.
Impact on Shareholders: Shareholders gain direct ownership in the spun-off company, which may offer diversification benefits or additional income through cash payouts.
Imagine someone offering to buy your house for more than it's worth. In the investing world, a tender offer is when a company or investor offers to buy shares from existing shareholders at a price higher than the current market value. This often happens when someone wants to take over or merge with the company.
In the stock market, an ‘odd-lot’ refers to a quantity of shares that's less than the standard trading unit of 100 shares. These smaller amounts are often traded by individual investors.
How Companies Handle Odd-Lot Offers:
1. Odd-Lot Tender Offers: Companies may offer to buy back odd-lot shares from shareholders, often at the market price or a slight premium.
2. Compulsory Buybacks: Occasionally, companies may require odd-lot shareholders to sell their shares back during reorganisations or consolidations.
Sometimes, a company decides to reduce the total number of its shares, which can increase the value of the remaining shares. It’s like a pizza place deciding to cut fewer slices, making each slice bigger for those who already have a piece.
Impact on Shareholders:
1. Share cancellations reduce the total number of outstanding shares, potentially increasing the value of remaining shares.
2. Return of Capital return cash to shareholders, reducing the company's equity.
3. Share buybacks allow the company to repurchase its own shares, often boosting the share's value by decreasing the supply.
This is a formal and legal way for a company to make big changes, like merging with another company (often used for consensual offers, and not hostile bids). It needs approval from both the shareholders and regulatory authorities to go through.
Impact on Shareholders: Once approved, all shares are acquired, even from dissenting shareholders.
Think of it like a popular shop deciding to stop displaying its products in a mall (the stock exchange) and instead operating privately. When a company's shares are delisted, they are no longer traded on the exchange, but the company itself continues to exist and operate privately. This can happen because the company chooses to leave (voluntary) or is forced out (involuntary).
EasyEquities will take the following steps in such situations:
1. Notification: You will be notified about the delisting and any required actions from your side.
2. Selling and Removal: Shares are often suspended before a delisting takes place. During suspension, shares cannot be bought or sold, making it impossible to trade the shares. For local shares, important dates like the last date to trade and the date of the delisting are provided are provided via a SENS announcement.
3. Alternative Actions: In some cases, where a company goes private or merges with another company, shareholders may be offered shares of the existing or newly formed company at a ratio or a cash settlement. The specific terms will depend on the nature of the delisting and the instructions provided by the company involved. Shareholders could also be given the option to remain a shareholder in the unlisted/private company, although it is worth noting that these shares will not be tradable on the EasyEquities platform.