Corporate Actions

           CORPORATE ACTIONS

WHAT IS CORPORATE ACTIONS?

“An event undertaken by an issuer (company) that may directly or indirectly effect the position holder (shareholders/bond holders)”. A Corporate action is any activity that brings material change to an organization and impacts its. stakeholders. These events typically need to be approved by the company’s board of directors. Corporate actions can be either volumentary, when investors choose to participate, or mandatory, when participation is obligatory.

Examples of Corporate actions: Bonus, Merges and Acquisition, Dividends, Spin-off, Etc…

Important dates for corporate actions:

Declaration Date: 

When the board of directors announces the dividend to shareholders and the date at which the dividend will be paid.

Ex-Bonus/Dividend date:

On which the share price is adjusted on the stock exchange according to the bonus/dividend ratio.

Record date:

When the investor must own shares in order to be eligible to participate in corporate event. The company checks with the depository/custodian as to who owns the shares.

Payout date:

On which the stated corporate actions is made effective.

Types of Corporate actions:

Mandatory Corporate Action:

“A mandatory corporate action is an event initiated by the corporation (BOD) that effect all shareholders. Participation of shareholder is mandatory for these corporate action.

Stock split: 

In case the stock price is very high they will reduce the share price so that it is affordable

Ex: Company “A” announce Stock Split & the ratio is 1:2

 Before Stock Split After Stock Split

No of shares: 10

No of shares: 20

Price: 10

Price: 5

Market Cap: 100

Market Cap: 100

Reverse Stock Split: 

In this case the stock price is very low, here they will increase the value of the share so that it becomes more expensive.

Ex: Company “A” announce Reverse stock split & the ratio is 2:1 ( Every 2 shares held now it will become 1 shares)

        Before Reverse Stock Split After Reverse Stock Split

No of shares: 100

No of shares: 50

Price: 10

Price: 20

Market Cap: 1000

Market Cap: 1000

Spin Off: 

A Spin off occurs when a particular division of the company is very profitable division is spin out and create a new company, Ex: Tata Group, Reliance Group etc…

Merger:  

Two listed company decides to merge & create one company.

Ex: “A” Company and “B” Company will merge and create a “C” Company . C Company will be listed on the stock exchange. Then A and B Company will be delisted from Stock Exchange. 

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