Tracking Stock

Tracking Stocks ( equities business, even Targeted floor, Mirror floor, floor and Letter alphabet Stock called ) are stocks that relate only to a particular division of a company. The owner of this usually listed shares have the same rights as the holders of other shares, but they all relate to a business. While these types of securities in the United States since Mitter finds application 1980s, it is still largely unknown in Germany.

Genera

A distinction tracking stock of the first generation ( Subsidiary shares), share their owners in the economic success of a legally independent subsidiary of the issuer (the parent company ) and tracking stock of the second generation ( Divisional shares), which reflect the outcome of a dependent, however, clearly defined division of the issuer.

Both versions are the holders of the tracking stock shareholders of the subsidiaries ultimate parent (first generation ) or a single company (second generation), whereby its economic destiny - is likely to be closely linked to the issuer - for example, in case of imminent insolvency. The individual rights of the owners partly differ significantly from each other; usually tracking stock are but with profit participation rights that reflect the earnings generated in the specified areas.

Requirements

To give the correct profit sharing to shareholders, a separate accounting is required. However, the management remains the same; it is not isolated.

Advantages and motives

For example, if the shares of the combined company undervalued, then tracking stocks can emit a successful business unit or a subsidiary to acquire the more equity. Besides the possibility of raising equity capital in the region that offers the best prospect at the time, the output can broaden the shareholder base of the company and improve the transparency and thus the company's market valuation. Furthermore, they can also serve as a defensive measure against hostile takeovers and the introduction of business- unit based management incentive systems.

The issue of tracking stock can be like a spin-off as a dividend in kind to the company's shareholders, as in an equity carve-out in the context of a public offering or as an acquisition currency to the shareholders of the acquired company, and these options can be combined. An important difference and advantage to equity carve-out is that the issue of tracking stock is not necessarily linked to the formation of legally independent subsidiaries. In addition, the company management can largely remain in the hands of the Executive Board of the Issuer as opposed to equity carve-out. The introduction of tracking stock can also be given due to the lighter revisability and tax benefits in preference to an equity carve-out.

Problems

The control of separate business areas is very difficult. There would be incentives to cross-subsidize unprofitable business units from a successful area. Since these of share is widespread in Germany still little, it also poses new challenges to auditors. That tracking stock are still used in comparison with spin-offs and equity carve- outs rather rare, resulting at least in Germany nor from the existing legal uncertainty.

Example in Germany

IPO of Hamburger Hafen und Logistik AG (HHLA ). The exchange-traded A shares represent only port handling operation, the S shares the property. The sole owner of the S shares is the city of Hamburg.