IPO Basics: Tracking Stocks
  1. IPO Basics: Introduction
  2. IPO Basics: What Is An IPO?
  3. IPO Basics: Getting In On An IPO
  4. IPO Basics: Don't Just Jump In
  5. IPO Basics: Tracking Stocks
  6. IPO Basics: Conclusion

IPO Basics: Tracking Stocks


Tracking stocks appear when a large company spins off one of its divisions into a separate entity. The rationale behind the creation of tracking stocks is that individual divisions of a company will be worth more separately than as part of the company as a whole.

From the company's perspective, there are many advantages to issuing a tracking stock. The company gets to retain control over the subsidiary but all revenues and expenses of the division are separated from the parent company's financial statements and attributed to the tracking stock. This is often done to separate a high-growth division with large losses from the financial statements of the parent company. Most importantly, if the tracking stock rockets up, the parent company can make acquisitions with the subsidiary's stock instead of cash.

While a tracking stock may be spun off in an IPO, it's not the same as the IPO of a private company going public. This is because tracking stocks usually have no voting rights, and often there is no separate board of directors looking after the rights of the tracking stock. It's like you're a second-class shareholder! This doesn't mean that a tracking stock can't be a good investment. Just keep in mind that a tracking stock isn't a normal IPO.

IPO Basics: Conclusion

  1. IPO Basics: Introduction
  2. IPO Basics: What Is An IPO?
  3. IPO Basics: Getting In On An IPO
  4. IPO Basics: Don't Just Jump In
  5. IPO Basics: Tracking Stocks
  6. IPO Basics: Conclusion
RELATED TERMS
  1. Tracking Stock

    1. Common stock issued by a parent company that tracks the performance ...
  2. Minority IPO

    An initial public offering in which a parent company spins off ...
  3. Spin Out

    A type of corporate restructuring. Spin outs occur when a corporation ...
  4. Taxable Spinoff

    A divestiture of a subsidiary or division by a publicly traded ...
  5. Initial Public Offering - IPO

    The first sale of stock by a private company to the public. IPOs ...
  6. Wholly Owned Subsidiary

    A company whose common stock is 100% owned by another company, ...
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