Tracking Stock

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Tracking stocks (also called Targeted Stock, Mirror Stock, Letter Stock and Alphabet Stock) are stocks that only relate to a specific business area of ​​a company . The holders of these mostly listed shares have the same rights as the holders of other shares, but these only relate to one business area. While this type of stock has been used in the US since the mid-1980s, it is still largely unknown in Germany .

Genera

A distinction is made between tracking stocks of the first generation (subsidiary shares), whose owners participate in the economic success of a legally independent subsidiary of the issuer (parent company), and tracking stocks of the second generation (divisional shares), which reflect the result of a dependent but clearly defined business area of ​​the issuer .

In both variants, the owners of the tracking stocks are shareholders of a parent company (first generation) or a unified company (second generation), which means that their economic fate - for example in the event of impending bankruptcy - is likely to be closely linked to that of the issuer. The individual rights of the owner differ considerably from one another; As a rule, however, tracking stocks are equipped with profit participation rights that reflect the profit generated in the specified areas.

conditions

Separate accounting is required in order to ensure that the shareholders receive the correct profit sharing. The corporate governance remains the same, however; it is not separated.

Advantages and motives

If, for example, the shares of the entire company are undervalued, tracking stocks from a successful business area or subsidiary can be issued in order to acquire more equity . In addition to the possibility of raising equity in the area that offers the best prospects at the time, the issue can broaden the company's shareholder base and improve transparency and thus the company's market valuation. Furthermore, they can also serve as a defense against hostile takeovers and for the introduction of business unit-related management incentive systems.

As with a spin-off, tracking stocks can be issued as a dividend in kind to company shareholders, as with an equity carve-out as part of a public placement or as acquisition currency to the shareholders of an acquired company, whereby these options can be combined with one another. A major difference and advantage to equity carve-out is that the issue of tracking stocks is not necessarily linked to the formation of legally independent subsidiaries. In addition, in contrast to the equity carve-out, corporate management can largely remain in the hands of the issuer's management board. The introduction of tracking stocks can also be given preference over an equity carve-out due to their easier revision and tax advantages.

Problems

The control of the separate business areas is very difficult. There are incentives to cross-subsidize unprofitable business areas from a successful area . Since this type of share is still not widely used in Germany, it also poses new challenges for auditors . The fact that tracking stocks are still rarely used in comparison to spin-offs and equity carve-outs is a result of the existing legal uncertainty, at least in Germany.

Examples in Germany

IPO of Hamburger Hafen und Logistik AG (HHLA)
The IPO in 2007 took place in two categories: the A shares traded on the stock exchange only represent the port handling company, the S shares the real estate. The city of Hamburg is the sole owner of the S shares.

literature

  • Steiner, Manfred / Natusch, Ingo : Tracking Stocks - an innovative instrument for equity financing, in: Die Bank 1996, pp. 580–585.
  • Natusch, Ingo : "Tracking Stocks" also in Germany ?, in: Handelsblatt No. 155 of August 13, 1996 p. 40.
  • Natusch, Ingo : New ways of equity financing for German companies through the issue of "Tracking Stocks", in: Der Betrieb 1997, pp. 1141–1148.
  • Natusch, Ingo : “Tracking Stocks” from the point of view of US tax law, in: Internationales Steuerrecht 1997, pp. 609–617.
  • Natusch, Ingo : Conceptual fundamentals of the accounting of US stock corporations with tracking stock structure, in: Die Wirtschaftsprüfung 1998, pp. 459-470.
  • Natusch, Ingo : Empirical analyzes of equity financing with “tracking stocks”: An overview, in: Internationales Steuerrecht 1999, pp. 122–125.
  • Natusch, Ingo : Shares for business areas should bring more momentum to trading, in: Handelsblatt No. 69 of April 12, 1999, p. 45.
  • Natusch, Ingo : Internet shares in a new light, in: Handelsblatt No. 149 of August 5, 1999, p. 43.
  • Natusch, Ingo : Non-tax Motivations for Tracking Stock, in: The M&A Tax Report, Volume 8, No. 6, January 2000, pp. 1-3.
  • Natusch, Ingo : “Tracking Stock” as an instrument for equity financing of diversified companies, 1995, 2nd edition 2000.
  • Natusch, Ingo : Development perspectives of equity financing with tracking stocks, in: FinanzBetrieb from September 4, 2001, issue 9, pages 496–501.
  • Friedl, Markus J .: A plea for tracking stocks, in: Betriebs -berat 2002, issue 23, page 1157–1164.
  • Wiebe, F .: Trump talks about banking reform again, in: Handelsblatt No. 85 of May 3, 2017, p. 35.