Many companies issue "tracking" stocks—also known as "targeted" stocks—in addition to their traditional common stock. A tracking stock is a type of common stock that "tracks" or depends on the financial performance of a specific business unit or operating division of a company—rather than the operations of the company as a whole.
Tracking stocks trade as separate securities. As a result, if the unit or division does well, the value of the tracking stock may increase—even if the company as a whole performs poorly. The opposite may also be true. The business can expand while giving up less intrinsic value. Another big benefit for management is that they retain control over the tracked operating segment or business.
On the flip side, there are several drawbacks to tracking stocks. Tracking stocks often have greatly reduced or non-existent voting rights. An owner of a tracking stock might not even own the specific aspect of the operating segment that is being tracked. Investors would feel the effect of this in the event of corporate bankruptcy. The assets of the particular division their tracking stock was supposed to represent would be fair game for the creditors, even if the division associated with the tracking stock was extremely profitable and growing rapidly.
That is not the case with traditional spin-offs. For example, the bankruptcy of Eastman Kodak in did not affect its former subsidiary Eastman Chemical. If the market goes south, the tracking stock can be absorbed back into the main stock at a price that may appear unattractive to owners of the tracking stock, or owners of the original corporate stock, or both.
That is eventually what happened to Sprint, and some investors were left experiencing resentment over wealth destruction. Securities and Exchange Commission. Accessed Sept. Sirius XM Holdings Inc. Actively scan device characteristics for identification. Use precise geolocation data. Select personalised content. Create a personalised content profile.
Measure ad performance. Select basic ads. Create a personalised ads profile. Select personalised ads. Apply market research to generate audience insights. Measure content performance. Develop and improve products. Tracking stock, which allows a company to issue separately traded classes of stock tied to distinct portions of its business, offers one potential method to bridge the gap between the increasing push for pure play stocks and maintaining the benefits of diverse business units under one corporate parent.
The trend lost steam about a decade ago, with a number of examples — particularly those that sought to realize value from first gen internet businesses — suffering significant losses following the bursting of the dot-com bubble. Notably, Liberty Media has continued to use tracking stocks throughout its long history of complex acquisitions, spin-offs and structuring, most recently splitting its common stock into three new tracking stocks each with its own high-, low- and no-vote subclasses to separately track its holdings in the Atlanta Braves, Sirius XM Radio and its other media assets including its interest in Live Nation Entertainment.
Tracking stock also was recently utilized by Fidelity National Financial to separate its title operations from its investment activities, after the latter came under criticism from activists. Tracking stock can be structured in a variety of ways, including.
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