When A Parent Company and A Subsidiary Are Traded Individually | TigerDroppings.com

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ell_13
USA Fan
Alex Box
Member since Apr 2013
20606 posts

When A Parent Company and A Subsidiary Are Traded Individually


Today, my company created a subsidiary to own and control a specific type of asset that it believes is unique and undervalued as a part of the whole company. This "new company" will have no employees and be completely owned by the parent. It's sole purpose is to "own" assets.

The IPO is today, and one of the questions that was asked to the CEO and VPs was how would it affect the parent's stock price. Their answer was basically that it wouldn't at all because the parent wholly owns this new subsidiary. But how is this possible? If you are creating a new IPO that is meant to reflect the value of the company, how can that value also be reflected somewhere else? I'm guessing there is some financial wand-waving going on in the background.

Then, this got me thinking about Altria and PM. So this isn't something new, but I'm still not sure how it works.







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lighter345
New Orleans Pelicans Fan
Member since Jan 2009
10360 posts

re: When A Parent Company and A Subsidiary Are Traded Individually


quote:

Definition of 'Minority IPO'
An initial public offering in which a parent company spins off one of its subsidiaries or divisions, but retains a majority stake in the company after issuance. This means that after the public offering, the parent company will still have a controlling stake of the new public company.

Investopedia explains 'Minority IPO'
The parent company may retain this majority stake forever or may slowly dissolve their ownership over time. This type of IPO allows the company to raise funds, accessing the value of the subsidiary, to fund its own operation or return value to shareholders.






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ell_13
USA Fan
Alex Box
Member since Apr 2013
20606 posts

re: When A Parent Company and A Subsidiary Are Traded Individually


Thanks. I didn't know it was referred to as a 'Minority IPO' or I would have tried google. I'm still not clear on how the value can be in two places at once, but at least now I know where to start.







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Cmlsu5618
McNeese State Fan
Destin, FL
Member since Sep 2010
2173 posts

re: When A Parent Company and A Subsidiary Are Traded Individually


quote:

I'm still not clear on how the value can be in two places at once


This is a great question IMO. Sometimes when companies split (i.e: Kraft and Monsanto), you recieve shares of each company, which the original is reduced by the market cap of the new stock.

However, this seems to be a different situation and a solid explanation would be neato.



This post was edited on 7/17 at 8:53 am


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ell_13
USA Fan
Alex Box
Member since Apr 2013
20606 posts

re: When A Parent Company and A Subsidiary Are Traded Individually


Still no explanations?

BTW, IPO was Wednesday @ $22. Already hit $28.






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AthensTiger
LSU Fan
Athens, GA
Member since Jul 2008
1200 posts
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re: When A Parent Company and A Subsidiary Are Traded Individually


My company did something similar about 15 years ago. They issued letter stock (targeted stock) instead of doing a subsidiary. As I recall, if you owned one share of parent, you got one share of the letter stock company. The letter stock company did have employees but everything was really run by the parent. There was still one BOD and really one CEO. Both shares were publicly traded. It was announced as a strategy to 'unlock value'. Now we know it was a move designed to value assets, then spin off or sell that part of the company. It did create shareholder value. As an employee it worked out well for me and for many of us.





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