Corporate Action And How You Can Benefit!
You've probably heard the phrase "Corporate Action", "Dividends", "Bonus Issues", etc
These big words may seem daunting, but ones you should know to reap its rewards. Essentially they're activities undertaken by companies to improve their position. Like buying a car to get to work quicker or dieting to lose weight.
Corporate Action, or "CA" for short, is just a fancy phrase that refers to any activity that may change your share value or a company's structure. They can range from stock splits to acquisitions.
One Stop Place To Learn All About Our Corporate Action Services
- Corporate Action refers to any activity that may impact your shareholding value or a company's structure.
- Companies do this to:
- Distribute value to shareholders
- Influence their share price
- Restructure their company
- Common Corporate Actions
- Dividends, Stock Splits, Share Consolidations, Mergers, Acquisitions, Spin-offs, Bonus Issues, Tender Offers, and Share Buybacks.
- Types of Corporate Actions
- Mandatory - Will happen regardless of your actions.
- Mandatory (Optional) - Requires you to pick one of multiple options.
- Voluntary - You can choose to participate or not.
Skip straight to the Corporate Action Noticeboard!
A Corporate Action Exercise Is Undertaken to...
- Distribute Value to its Shareholders (DV) – As a shareholder you're the rightful owner of a company (albeit a very small part). As one of the "owners" you'll get to share their successes through, for example, cash dividends!
- Influence their Share Price (ISP) – When a company's stock price is too high or too low, it can look bad. A price that's too high might deter investors from jumping in; on the other hand, a price that's too low might cause a company to be delisted. Companies can use CAs to infleunce their share price.
- Restructure the Company (RC) – At times, companies may decide to conduct big actions such as merging with another company, purchasing another company, or spinning off certain parts of itself all to improve business outlook, resources, or improve profitability.
Prepare for Action
So when you hear a company will be undergoing a corporate action exercise... here's what you should be ready for.
We've labelled the potential reasoning for each activity with the handy abbreviations for better understanding!
Dividends – When a company distributes some of its earnings to shareholders. Sometimes companies may give the option for shareholders to reinvest their dividends into additional shares but at a lower market price. If you're interested in these, we have an entire page about it! Check it out Here! (DV + ISP)
- At RT: You don't have to do anything to collect your dividends. We'll automatically credit your dividends to your account within 3 to 5 business days from the payment date. If the company offers an option, we'll send you an email about it so that you can pick!
Bonus Issues - When a company pays and distributes additional shares to its existing shareholders. If you had 1 share for example, you may receive another for free! Now, you’re probably thinking “this is the same as a stock split”! Well, yes and no. While they both ultimately result in the same effect (1 stock becoming 2 stocks), stock splits are a literal split while bonus issues are when a company pays for the additional stocks and can set the exact value of each new stock. (RC + ISP + DV)
- At RT: We'll automatically distribute your entitled shares to your account. No action needed from you.
Stock Splits & Share Consolidation - Stock Splits are a division of existing shares into multiple new shares. If you have 1 share it may be split into 2 during a Stock Split. The opposite is a Share Consolidation (also known as a Reverse Split in other countries) where the 2 shares would've been merged into 1. In the case of a Stock Split, the stock price would also be adjusted down to roughly half of what it was prior to the split since now there are more shares representing the same total market capital. Overall, the value of your stock holding remains the same, but the stock price is now lower. (ISP)
- At RT: We'll automatically adjust your shareholdings based on the Stock Split or Share Consolidation.
Mergers & Acquisitions - When two companies merge together to form one new company, or a company outright buys another. Businesses do this mainly to boost profitability. (RC)
- At RT: We’ll notify you via email if your shares received the takeover offer by the offeror who wish to acquire your shares. Based on the independent advice circular, you can choose whether to ignore or to accept takeover offer at Rakuten Trade member webpage, Corporate Action Subscription page. If you accepted the offer, the payment will be made to you based on the terms of the offer (offer price).
Spin-Offs - This is kind of the opposite of a merger or acquisition. It's when a company decides to split off one part of itself into a new entity. This is so that the new entity is more focused and efficient. (RC)
This won't impact your day-to-day trading, but you may see a fluctuation in the price of a company stock you own if they decide to spin-off a portion of their operations.
Tender Offers - A tender offer is essentially an offer to buy your shares. When an investor is seeking to be a majority shareholder, they can offer to buy up shares from anyone willing to sell. You can then choose whether you want to sell your shares to them or not. (RC)
- At RT: If you want to participate in the tender offer, send us an email at firstname.lastname@example.org and we’ll sort it out for you!
Share Buybacks - When a company purchases its own shares from the market using its own cash. This is typically to either boost share price, seize the opportunity to grab up undervalued shares, or improve financial ratios. (ISP + RC)
The company will buy these shares directly from the market, so there’s no action needed from you.
There are also other similar events such as Asset ID/Name Changes (when they change the stock information), or Annual General Meetings (AGMs) and Extraordinary General Meetings (EGMs). But these are unlikely to impact your trading.
If you wish to attend an AGM or EGM, please send us an email at email@example.com at least 10 days prior to the AGM/EGM date so that we can register you!
If you have any questions about how to opt in/participate in a CA, you can always refer to our FAQ section on Corporate Action for more information!
Types of Corporate Action
Now you don't actually have to keep track of all these different types of corporate actions in ourder to benefit.
There are different types of Corporate Actions, some automatically take place, and others require... action, duh.
Mandatory – The “mandatory” name is actually misleading; you’re not required to do anything, you’re just a passive recipient/bystander. Mergers & acquisitions, stock splits, bonus issues, spin-offs, and certain types of dividends are all “mandatory” corporate actions. Meaning they’ll happen whether you like them or not.
Mandatory (Options) - This is sort of like the cousin of a “mandatory” corporate action. These are actions that enable you, a shareholder, to pick one of a few options if you want to. For example, a company may give you the option to collect dividends as cash or as stock; you decide!
Voluntary - Last and certainly not least is the “voluntary” corporate action. These are, you guessed it, optional. Things like Tender Offers or AGMs. Actions that you can choose to participate in or not.
So, we’ve placed a spotlight on CAs, honed your knowledge of different types of actions, and sharpened your Corporate Action senses. What now?
Check out this list of upcoming Corporate Actions to stay up to date!
psst... also don't forget as a shareholder you get to attend their AGMs too!LET'S TRADE
*Entitlement details sourced from Bursa Malaysia.
Note: This table serves only as a guideline and should not be taken as an investment recommendation.