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The company is made up of 3 companies and one of the companies is being sold. One of the remaining companies will become the main stock with a new name and the stock holders will be given shares of the 3rd company based on the number of the existing shares of the old company. Basically how are stock prices determined?

2007-04-23 09:44:01 · 3 answers · asked by BFagen 1 in Business & Finance Investing

3 answers

What happens is that every shareholder in the old company receives a certain number of shares in each of the new companies for every share of the old company. The new shares then begin to trade on the exchange, while the old shares cease to trade.

Typically, this situation (depending on the details, it may be called split-up, spin-off, or carve-out) is a very good news for shareholders. Companies that separate typically do well separately.

2007-04-23 11:17:26 · answer #1 · answered by NC 7 · 0 0

Yes, it's a difficult situation to figure out. The two new stocks basically trade at whatever price the market assigns to them. Usually, it will add up to the price that the single stock was trading at before. Shareholders of the old stock will receive shares in the new stock, too. The really difficult part is if you're a stockholder, figuring out what your tax basis is on each of these shares.

Strategy hint: What I've observed lately is that quite often the new named company is where the value is. They end up leaving all the crummy assets and all the debt in the old named company, and spin off all the cool stuff into the new company. So, I usually sell the old one after the spin-off and buy more of the new one. It's paid off quite well.

2007-04-23 12:59:16 · answer #2 · answered by skip742 6 · 0 0

It sounds as if you are a new investor. There are 2 great ways to get started investing and they are conservative and don't cost much to get started. Your first option should be to fund fully a retirement account. If you do this, and you have extra cash, then one of the best things you can do is open a DRIP Plan. These powerful investment plans are seldom talked about because brokers make very little money when they suggest them. Yet, they have proven to be one of the best, if not the best, long-term strategy on Wall Street. They are perfect for small investors, as well as big investors. They are safe and allow you to not care about whether the market is going up or down. They are a must for any serious investor. I strongly recommend looking into it. They are great plans.

2016-05-17 06:56:47 · answer #3 · answered by kym 3 · 0 0

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