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Corporate Actions:

A corporate action is an event initiated by a public company that affects the securities (equity or debt) issued by the company. Some corporate actions such as a dividend (for equity securities) or coupon payment (for debt securities (bonds)) may have a direct financial impact on the shareholders or bondholders; another example is a call (early redemption) of a debt security. Other corporate actions such as stock split may have an indirect impact, as the increased liquidity of shares may cause the price of the stock to rise. Some corporate actions such as name change have no direct financial impact on the shareholders.

Purpose: The primary reasons for companies to use corporate actions are: Return profits to shareholders : Cash dividends are a classic example where a public company declares a dividend to be paid on each outstanding share. Bonus is another case where the shareholder is rewarded. In a stricter sense the Bonus issue should not impact the share price but in reality, in rare cases, it does and results in an overall increase in value. Influence the share price : If the price of a stock is too high or too low, the liquidity of the stock suffers. Stocks priced too high will not be affordable to all investors and stocks priced too low may be de-listed. Corporate actions such as stock splits or reverse stock splits increase or decrease the number of outstanding shares to decrease or increase the stock price respectively. Buybacks are another example of influencing the stock price where a corporation buys back shares from the market in an attempt to reduce the number of outstanding shares thereby increasing the price. Corporate Restructuring : Corporations re-structure in order to increase their profitability. Mergers are an example of a corporate action where two companies that are competitive or complementary come together to increase profitability. Spinoffs are an example of a corporate action where a company breaks itself up in order to focus on its core competencies. Types: Corporate actions are classified as Voluntary, Mandatory and Mandatory with Choice corporate actions. Mandatory Corporate Action : A mandatory corporate action is an event initiated by the corporation by the board of directors that affects all shareholders. Participation of shareholders is mandatory for these corporate actions. An example of a mandatory corporate action is cash dividend. All holders are entitled to receive the dividend payments, and a shareholder does not need to do anything to get the dividend. Other examples of mandatory corporate actions include stock splits, mergers, pre-refunding, return of capital, bonus issue, asset ID change, pari-passu and spinoffs. Strictly speaking the word mandatory is not appropriate because the share holder per se doesn't do anything. In all the cases cited above the shareholder is just a passive

beneficiary of these actions. There is nothing the Share holder has to do or does in a Mandatory Corporate Action. Voluntary Corporate Action : A voluntary corporate action is an action where the shareholders elect to participate in the action. A response is required by the corporation to process the action. An example of a voluntary corporate action is a tender offer. A corporation may request share holders to tender their shares at a pre-determined price. The shareholder may or may not participate in the tender offer. Shareholders send their responses to the corporation's agents, and the corporation will send the proceeds of the action to the shareholders who elect to participate. Sometimes a voluntary corporate action may give the option of how to get the proceeds of the action. For example in case of a cash/stock dividend option, the shareholder can elect to take the proceeds of the dividend either as cash or additional shares of the corporation. Other types of Voluntary actions include rights issue, making buyback offers to the share holders while delisting the company from the stock exchange etc. Mandatory with Choice Corporate Action : This corporate action is a mandatory corporate action where share holders are given a chance to choose among several options. An example is cash/stock dividend option with one of the options as default. Share holders may or may not submit their elections. In case a share holder does not submit the election, the default option will be applied Corporate Actions Information:
When a company announces a corporate action, registered shareholders are told of the event by the company's registrar. Financial data vendors collect such information and disseminate it either via their own services to institutional investors, financial data processors or via online portals in the case of individual investors

Acquisition In general, companies will aim to grow. Growth can be achieved organically (the company simply growths their existing company) or inorganically (by acquiring other already existing businesses and integrate them with their own). In order to excecute an acquisition strategy, the acquiring company may use several means: a merger, a takeover bid (usually by announcing a Tender Offer or an Exchange Offer) which are all Corporate Actions Events. Click on the links to read more about these events.

Bonus Issue
Shareholders are awarded additional securities (shares, rights or warrants) free of payment. The nominal value of shares does not change.

A Bonus Issue, which is sometimes referred to as "Scrip Issue" or "Capitalisation Issue", is effectively a free issue of shares - paid for by the company issuing the shares out of capital reserves. Please note that a Bonus Issue should NOT be seen as a Dividend, like for example a STOCK DIVIDEND event. A company calls a Bonus Issue to increase the liquidity of the company's shares in the market. Increasing the number of shares in circulation reduces the share price. The term 'Bonus Issue' is generally used to describe what is technically a capitalisation of reserves. The company, in effect, issues free shares paid for out of its accumulated profits (reserves). Theoretical example, company ABC calls a 1 for 4 Bonus issue:

For every four shares you own in ABC you will receive one additional free share i.e. you will own 5 shares of ABC plc after the issue The number of shares issued increases by 25% The share price adjusts proportionately; if the market price was 100 cents before the issue, it will adjust to 80 cents as the number of shares have increased

The Earnings Per Share (EPS) and Dividend Per Share adjust proportionately, but the ratios remain the same The issued share capital increases by 25%, although this is offset by the reduction in the capital reserves.

Merger Merger of 2 or more companies into one new company. The shares of the old companies are consequently exchanged into shares in the new company according to a set ratio. Stock Dividend Almost identical to bonus issues where additional shares in either the same or different stock is issued to shareholders of the underlying stock Stock Split A stock split is a division of the company shares into X number of new shares with a nominal value of 1/X of the original share. For example a BMW 2 for 1 stock split, where a BMW share par value decreases to EUR 0.50 from EUR 1.00, whilst the number of share doubles. The total value of the outstanding shares remains the same. BONDS:

Conversion of convertible bonds Convertible bonds are being converted in the underlying shares Coupon Payment - interest payment The issuer of the bond pays interst according to the terms and conditions of the bond, ie interest rate and intervals of payment. Early Redemption The issuer of the bond repays the nominal prior to the maturity date of the bond, normally with accrued interest. Lottery (also known as a drawing) The issuer redeems selected holdings before the maturity date of the bond (early redemption). Partial Redemption The issuer of the bond repays part of the nominal prior to maturity, normally with accrued interest. Final Redemption The issuer of the bond repays the nominal of the bond, normally with accrued interest.

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