Corporate actions

 

What is a Corporate Action?

A corporate action occurs when a company makes a decision affecting shareholders and results in a significant change to a company's stock. This can take the form of a mandatory or voluntary corporate action.

Mandatory Corporate Actions

Voluntary Corporate Actions

 

Mandatory Corporate Actions

A mandatory corporate action is an action affecting all shareholders initiated by the board of directors. Participation of shareholders is mandatory for these corporate actions.  M1 will make sure to handle mandatory corporate actions according to the company's instruction.

Below is an overview of the mandatory corporate actions on M1 Finance.

 

Mergers & Acquisitions

A merger can occur when a company absorbs, or merges, with another company.  The purchasing company may choose to allocate shares, cash, or a combination of the two for the shares of the acquired company.

 

Stock merger

A stock merger occurs when the shareholders of the old stock receive shares of the new company. 

Please note: In the event this occurs, you will be responsible for adding the security to your portfolio before the next trading window. In the event your symbol is not added to your portfolio, the new symbol will be liquidated and reinvested into your remaining portfolio.

Example: XYZ Co. decides to buy FunTech Co.

XYZ Co. decides to issue 2 shares of XYX for every 1 share of FunTech Co. the shareholders held. FunTech owners now own XYZ Co. shares and FunTech Co. stops trading on the market.

 

Cash merger

A cash merger occurs when the shareholders of the old stock receive cash in return for the old stock.

Please note: In the event this occurs, the cash will be automatically applied to your account's cash balance.

Example: XYZ Co. decides to buy FunTech Co.

XYZ Co. decides to issue $5 for every 1 share of FunTech Co. the shareholders held. FunTech Co. stops trading on the market.

 

Stock & Cash merger

A stock & cash merger occurs when the shareholders of the old stock receive shares of the new stock plus a cash amount. 

Please note: In the event this occurs, you will be responsible for adding the security to your portfolio before the next trading window. In the event your symbol is not added to your portfolio, the new symbol will be liquidated and reinvested into your remaining portfolio.

Example: XYZ Co. decides to buy FunTech Co.

XYZ Co. decides to issue 2 shares of XYX and $5 for every 1 share of FunTech Co. the shareholders held. FunTech owners now own XYZ Co. shares, are issued cash, and FunTech Co. stops trading on the market.

 

Stock Split

A company will issue a stock split when they want to either increase or decrease the number of shares outstanding.  On M1, you do not need to do anything on your account.  We will take care of it for you!

Please note: The value of your shares will stay the same.

Forward Split

When a company issues a forward stock split, the number of shares outstanding will increase, while the stock's share price will decrease. 

Example: You own 150 shares of FunTech at $10 per share. FunTech decides to offer a 2-for-1 (2:1) forward stock split because of an increase in their stock’s value. After the split occurs, you will own 300 shares of FunTech at $5 per share.

Reverse Split

When a company issues a reverse stock split, the number of shares outstanding will decrease, while the stock's share price will increase. 

Example:  You own 300 shares of FunTech at $5 per share. FunTech decides to offer a 1-for-2 (1:2) reverse stock split because of an decrease in their stock’s value. After the split occurs, you will own 150 shares of FunTech at $10 per share.

NOTE: Your performance on your portfolio may be incorrect for a day or two while the split processes. Cost basis may also take a few days to update to account for the split.

 

Symbol Change

A company’s ticker symbol may change because of a company name change, corporate action, or the symbol is trading on a new exchange. In your M1 account, symbol changes are automatically adjusted with no action necessary on the user end.

Please note: Symbol changes are different than stock mergers where shares of a new company are received due to being a shareholder of another company. Instead, you will own the same number of shares of the new symbol.

Example:  Company XYZ announces their ticker symbol will be changed to XYZX. On the ex-date for this mandatory corporate action, XYZ will be inactivated and all pies holding XYZ will have the slice changed to XYZX.

 

Spin-off

A company issues a spin-off when it decides to create a new, independent company under its parent umbrella.  When this happens, the parent company may decide to issue shares of the new independent company to the existing shareholders of the original company.

Please note: If you receive a spin-off security, you will be responsible for adding the new symbol to your portfolio before the next trading window.  In the event your symbol is not added to your portfolio, the spin-off security will be liquidated and reinvested into your remaining portfolio.

 

Delisting

A delisting may occur when a company no longer trades on an exchange.  This generally means when a security has been removed from a major exchange and is not traded on the OTC markets.

In the event of a delisting, your security will remain in your portfolio until you remove it.  You will not be able to purchase any more shares, but you are able to liquidate the shares if the company still trades.

 

Voluntary Corporate Actions

A company may participate in a voluntary corporate action for its shareholders. This action may include the company repurchasing shares or selling newly issued shares at a specified price. These offers are typically only for existing shareholders and may come with an expiration date for the offer.

Below is an overview of a few voluntary corporate actions and the process to participate as a shareholder.

 

Tender Offer

A tender offer allows existing shareholders to tender or sell their shares at a specified price determined by the company. Current shareholders will receive a notice via mail or email with the terms of the offer and the expiration date for instruction.

Example: Company ABC might be trading at $50 per share on the exchange. The company may present its shareholders with an offer to tender their shares at $55 per share, with the offer expiring in 2 weeks. As a shareholder, participation is completely voluntary so the shares do not have to be tendered and can remain in the brokerage account. If the shareholder wishes to tender their shares, they will receive a cash payout for shares previously held, multiplied by the offer price.

If you received a tender offer in the mail or from an email, contact us with your instructions.

 

Rights Offering

The final voluntary action is a rights offering, allowing current shareholders to purchase newly issued shares of company stock at a specific exercise price. This offering takes place before the shares are offered to the rest of the public and do come with a short-term expiration date.

Example: A shareholder of company XYZ receives 100 rights to buy new shares at $25 per share. In this scenario, the shareholder may participate in the rights offer and purchase new shares. The customer must have available cash to pay for the new shares upon exercising the right. This offer is completely voluntary and may expire without instruction or participation.

If you received a rights offering in the mail or from an email, contact us with your instructions.

 

Warrants

Another voluntary action is a warrant which allows current shareholders to buy additional stock at a fixed price, otherwise known as the exercise price. Warrants typically have a longer duration until expiration, unlike other voluntary corporate actions, and may not expire for several years.

Example: Company ABC issues warrants to buy 5 shares of stock at a $20 strike price and a shareholder receives one warrant. The warrant has an expiration date infive years. Once the market price of ABC rises to $25 per share, a shareholder might exercise their warrant allowing them to buy the 5 shares at the $20 strike price instead of the current market price. This action is completely voluntary, too, so the warrants may expire without an action taken.

If you received a notice about a warrant and would like to take action, contact us with your instructions.

 

Still have questions?  Contact us!

 

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