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A tracking stock is a special type of stock issued by a publicly held company to track the value of one segment of that company. By issuing a tracking stock, the different segments of the company can be valued differently by investors.
A company has many good reasons to issue a tracking stock for one of its subsidiaries (as opposed to spinning it off to shareholders). First, the company gets to keep control over the subsidiary (although they don't get all the profit). Second, they might be able to lower their costs of obtaining capital by getting a better credit rating. Third, the businesses can all share marketing, administrative support functions, a headquarters, etc. Finally, and most importantly, if the tracking stock shoots up, the parent company can make acquisitions and pay in stock instead of cash.
When a tracking stock is issued, the company can choose to sell it to the markets (i.e., via an initial public offering or IPO) or to distribute new shares to existing shareholders. Either way, the newly tracked business segment gets a longer leash, but can still run back to the parent corporation if times get tough.
All is not perfect in this world. Tracking stock is a second-class stock, primarily because holders do not have the same voting rights as holders of the main stock. Each share of tracking stock may have 1/2 or 1/4 of a vote; in very rare cases, holders of tracking stock have no vote at all.
Added
03/04/2006 | Last Googled
12/12/2006
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