Paired Shares

What Are Paired Shares?

Paired shares are the stock of two separate companies that operate under the management or supervision of a single corporation. Paired shares are publicly-traded as if they are one stock and are sold as one unit. They are also called "Siamese Shares" and "Stapled Stock."

How Paired Shares Work

Buying paired shares means investing in the common stock of two corporations run by the same team. The companies are joined at the hip and cannot be separated from each other, so investing in one means investing in the other as well—they trade together as one security on the stock exchange.

Separate stock certificates are not usually issued to reflect the stakes in two separate companies that paired shares offer. The stock of both companies typically appears on one stock certificate, with each stock printed on one side of the document.

In general, one stock focuses on income, yielding a higher dividend, while the other targets capital appreciation and has a greater potential for growth.

Examples of Paired Shares

These days, paired shares are fairly uncommon in the U.S. However, there are one or two examples. Carnival Corp. (CCL) and plc, the British-American cruise operator known previously as P&O Princess Cruises plc, completed a dual-listed company transaction in April 2003.

Shares of Carnival Corp. common stock were paired with trust shares of beneficial interest in the P&O Princess Special Voting Trust. As part of this process, each holder of Carnival Corp. stock was given an equivalent number of these new shares, referred to as the "trust shares" or "paired shares."

Another example is Extended Stay America Inc. (STAY). The budget, extended-stay hotel chain is publicly traded as a paired share with the owner of its hotels, real estate investment trust (REIT) ESH Hospitality Inc. (STAY)—as you can see, both companies share the same ticker.

One share of Extended Stay America Inc. common stock, with a par value of $0.01, together with one share of ESH Hospitality Inc. Class B common stock, par value of $0.01, are attached and trade as a single unit.

History of Paired Shares

The paired-share structure was popular in the REIT industry until the Internal Revenue Service’s (IRS) Restructuring and Reform Act of 1998, enacted by the Clinton Administration, ended the controversial corporate tax advantages that it facilitated.

In the 1980s, paired-share REITs could own their properties while an attached traditional corporation operated them, with the two companies trading as a single entity. Through this structure, the REIT avoided taxes because the operating company could transfer the majority of its revenues to the REIT via rents.

By 1984, Congress prohibited the formation of new paired-share REITs but allowed a few existing paired-share REITs to continue as a legacy, including Starwood Hotels & Resorts, Patriot American Hospitality, MediTrust, and First Union Real Estate.

However, when Starwood purchased ITT Corp. for $14.6 billion in 1998, the Treasury Department and Congress began to ratify legislation that completely put a stop to this loophole. Following the IRS bill’s enactment in July 1998, Starwood changed from a REIT to a traditional corporation, effectively ending the paired-share structure.