Spinoff Question

[spartansaver]

A spinoff situation I'm looking at has the section below in it. How do I know if the shares I purchase are "regular way" vs. "ex-distribution" shares?

Thanks

 

"Q: If I sell my shares of XX common stock before or on the Distribution Date, will I still be entitled to receive YY shares in the Distribution with respect to the sold shares?

 

A: Beginning on or shortly before the record date and continuing up to and including the Distribution Date, we expect there will be two markets in XX common stock: a “regular-way” market and an “ex-distribution” market. Shares of XX common stock that trade on the “regular-way” market will trade with an entitlement to receive shares of our common stock to be distributed in the Distribution. Shares that trade on the “ex-distribution” market will trade without an entitlement to receive shares of our common stock to be distributed in the Distribution, so that holders who initially sell XX shares ex-distribution will still be entitled to receive shares of YY common stock even though they have sold their shares of XX common stock before the Distribution, because the Xx shares were sold after the record date. Therefore, if you owned shares of XX common stock on the record date and sell those shares on the “regular-way” market before the Distribution Date, you will also be selling the right to receive the shares of our common stock that would have been distributed to you in the Distribution. If you own shares of XX common stock as of the close of business on the record date and sell these shares in the “ex-distribution” market on any date up to and including the Distribution Date, you will still receive the shares of our common stock that you would be entitled to receive in respect of your ownership of the shares of XX common stock that you sold. You are encouraged to consult with your financial advisor regarding the specific implications of selling your XX common stock prior to or on the Distribution Date."

 

[LC]

I believe it is based on the date.

 

The shares are the same, but before the record date is “regular way” trading and so the market prices will be 100% ie reflecting ownership rights to SpinCo shares.

 

After the record date will be ex-distribution pricing which will be at a discount because it does not include rights to SpinCo shares.

[spartansaver]

If that is the case, shouldn’t a company doing a spinoff drop in price on the ex date? From the ones I’ve looked at, the company doing the spin falls on the date of the spinoff.

[LC]

I would imagine so, similar to how stocks price ex-dividend. But, I could be completely wrong as I usually avoid spinoffs on the dates of trading.

 

If there's trading specifically for shares without distribution rights usually there is a specific CUSIP and ticker as well, not sure if you have any mention of that.

[Guest Schwab711]

There should be two tickers. One for transferred rights and one for the stub. Regular way should be the most traded issue and the other way should end with a V but who knows in your case without reading the docs

[spartansaver]

I see, I found the one ending in V, although no shares have been traded yet. Thanks a lot!