Corporate actions
Things a company does that change what your share represents. Some are cosmetic, some are not, and they are easy to misread.
A corporate action is any company decision that changes the shares themselves or what they entitle you to. Some require a response from you; most do not; all are worth understanding.
Buybacks
The company uses cash to purchase its own shares, which are then cancelled. Fewer shares exist, so each remaining one owns a larger slice.
Buying back shares below what the business is worth transfers value to remaining holders. Buying them back above it destroys value. Companies have historically tended to buy most heavily when cash is plentiful and prices are high, which is the wrong half of that sentence.
Rights issues
The company issues new shares, offering existing holders the right to buy them first, usually at a discount. It raises money and it dilutes anyone who does not participate.
Ignoring a rights issue is a decision, not a neutral act — your proportional ownership falls.
Spin-offs
A division is separated into its own listed company and its shares distributed to existing holders. You now own two companies where you owned one, and the combined value may differ from the original.
Special dividends
A one-off payment, usually after an asset sale. Like any dividend, the share price adjusts downward by roughly the amount paid — see dividends.
Mergers and acquisitions
- Cash offer. Your shares are bought for money; the position closes and may create a tax event.
- Share offer. You receive shares in the acquirer; you now own a different company.
- Mixed. Some of each.
It is the market pricing the probability the deal completes. If the offer is $50 and the shares trade at $47, the gap is the market's estimate of deal risk, not a disagreement about what the company is worth.