Corporate Actions Glossary of Terms November 2015

Mandatory Events Assimilation- Absorption of a new issue of stock into the parent security where the original shares did not fully rank pari passu (equally) with the parent shares.  After the event, the assimilated shares rank pari passu (equally) with the parent.  Acquisition- A company adopting a growth strategy, can use several means in order to seize control of other companies.  Bankruptcy- The company announces bankruptcy protection and the legal proceedings start for which it will be decided what pay-outs will be paid to stakeholders.  Bonus Issue- Shareholders are awarded additional securities (shares, rights or warrants) free of payment. The nominal value of shares does not change. 

Mandatory Events Bonus Rights- Distribution of rights which provide existing shareholders the privilege to subscribe to additional shares at a discounted rate. This corporate action has similar features to a bonus and rights issue. Cash Dividend- The company pays out a cash amount to distribute its profits to shareholders.  Class Action- A lawsuit is being made against the company (usually by a large group of shareholders or by a representative person or organization) that may result in a payment to the shareholders. Delisting- The company announces that it securities will no longer be listed on a stock exchange and that they will be booked out. 

Mandatory Events De-merger- One company de-merges itself into 2 or more companies. The shares of the old company are booked out and the shares of the new companies will be booked in according to a set ratio. Ex Date- In a stock split, the date the share price changes to reflect the split. For a dividend, the first day of the ex-dividend period. The ex-date was created to allow all pending transactions to be completed before the record date. If an investor does not own the stock before the ex-date, he or she will be ineligible for the dividend payout. General Announcement- An event used by the company to notify its shareholders of any events that take place. This event type is used to communicate several types of information to the shareholders.

Mandatory Events Initial Public Offering (IPO)- This is the first corporate actions event in the history of any company. The first time that a company gets listed on a stock exchange is regarded as an event in itself. Underwriters will try to get as many buyers for the newly listed shares for a price as high as possible. Any shares they cannot sell will be bought by the underwriters. Liquidation- Liquidation proceedings consist of a distribution of cash and/or assets. Debt may be paid in order of priority based on preferred claims to assets specified by the security e.g. ordinary shares versus preferred shares. Mandatory Exchange / Mandatory Conversion- Conversion of securities (generally convertible bonds or preferred shares) into a set number of other forms of securities (usually common shares).

Mandatory Events Merger- Merger of 2 or more companies into one new company. The shares of the old companies are consequently exchanged into shares in the new company according to a set ratio. Name Change- Name changes are normally proposed and approved at the Company’s General meeting.  This has no effect on the capital and shareholder’s of the company.  Par Value Change- Similar to stock splits where the share nominal value is changed which normally results in a change in the number of shares held. Return of Capital- A cash amount will be paid to investors in combination with a nominal value change of the shares.

Mandatory Events Reverse Stock Split- The number of outstanding shares of the company gets reduced by an ‘X’ number while the nominal value of the shares increases by ‘X’. For example a ‘BMW' 1 for 2 reverse stock split, where the BMW shares’ nominal value increases from EUR 0.50 to EUR 1.00. The total value of the outstanding shares remains the same.  Scheme of Arrangement- Occurs when a parent company takes over its subsidiaries and distributes proceeds to its shareholders. Scrip Dividend- The UK version of an optional dividend.  No stock dividends / coupons are issued but the shareholder can elect to receive either cash or new shares based on the ratio or by the net dividend divided by the re-investment price.  The default is always cash.

Mandatory Events Scrip Issue- Shareholders are awarded additional securities (shares, rights or warrants) free of payment.  The nominal value of shares does not change. Spin-Off- A distribution of subsidiary stock to the shareholders of the parent corporation without having cost to the shareholder of the parent issue. Stock Dividend- Almost identical to bonus issues where additional shares in either the same or different stock is issued to shareholders of the underlying stock.

Mandatory Events Stock Split- A stock split is a division of the company shares into ‘X’ number of new shares with a nominal value of ‘1/X’ of the original share.  For example a ‘BMW’ 2 for 1 stock split, where a BMW share par value decreases to EUR 0.50 from EUR 1.00, whilst the number of share doubles. The total value of the outstanding shares remains the same. 

Mandatory Events with Options Cash Stock Option- Shareholders are offered the choice to receive the dividend in cash or in additional new shares of the company (at a discount to market). Reinvesting often carries a tax shield. Merger with Elections- Merger of 2 or more companies into one new company. The shares of the old companies are consequently exchanged into shares in the new company according to a set ratio. Shareholders of both companies are offered choices regarding the securities they receive Spin-off with elections- A distribution of subsidiary stock to the shareholders of the parent corporation without having cost to the shareholder of the parent issue whereby the shareholders are offered choices regarding the resultant stock.

Voluntary Events Buy-back program (BIDS) / Repurchase Offer- Offer by the issuing company to existing shareholders to repurchase the company’s own shares or other securities convertible into shares.  This results in a reduction in the number of outstanding shares. Dividend Reinvestment Plan (DRIP)- Similar to cash stock option. In this case however, the company first pays the cash dividend after which shareholders are offered the possibility to reinvest the cash dividend in new shares.

Voluntary Events Dutch Auction- A Dutch Auction Offer specifies a price range within which a fixed number of shares will ultimately be purchased. Shareholders are asked to submit instructions as to what price they are willing to sell. Once all instructions have been counted, the shares of the shareholders who voted to sell at the lowest prices will be bought untill either the fixed number of shares is reached or the upper limit of the price range is reached.

Voluntary Events Odd lot Tender- In case shares are tradable in so called board lots of for example 100 shares only and a shareholder has an amount of shares that is not a multiple of the board lot, then this additional quantity is called odd lot. An odd lot tender is an offer to shareholders with odd lots to sell the shares in the odd lot at a given price. So for example, if the board lot is 100 and a shareholder holds 150 shares, an odd lot tender will give the shareholder to dispose of 50 shares at a given price. The board lot of 100 will still be tradable as normal.

Voluntary Events Rights Auction- Rights to buy new shares are being auctioned - shareholders who submit the highest prices at which they are willing to buy new shares will get the new shares. Rights Issue- Rights are issued to entitled shareholders of the underlying stock. They allow the rights holder to subscribe to additional shares of either the same stock or another stock or convertible bond, at the predetermined rate/ratio and price (usually at a discount to the market rate). Rights are normally tradable and can be sold/bought in the market, exercised or lapsed.  Subscription Offer- Offer to existing shareholders to subscribe to new stock or convertible bonds.

Voluntary Events Takeover- One company taking control over another company (usually by acquiring the majority of outstanding share voting rights). Tender Offer- Offer from Company A to shareholders of Company B to tender their shares to company A at a given price. The given price can be payable in cash only, stock in Company B only or a combination of cash and stock. Voluntary Exchange / Optional Conversion- Offer to exchange shares of security A into cash or into Security B.