Often we have heard and read about corporate actions by a company. It is very necessary to know what type of corporate action a company is likely to come up with. For example, if the corporate action is for Bonus or Stock Split of Shares it might excite you.
What are Corporate Actions?
Corporate actions are any such news from the company which will have an impact on the movement of a stock price of a company.
Some action may have direct impact such as issue of dividends or coupon payments. Indirect can be announcement of stock split.
Some of the actions are approved by Board of Directors and shareholders of the company. These include actions like stock Split, dividends, name change, mergers and acquisitions to name a few.
At times when company is making profit they declare dividends and bonus to its shareholders. These corporate actions are taken to return profit to its shareholders.
Corporate actions are sometimes done to offer more value to shareholders. For example, a stock split could lead to higher value for shareholders, though it may not always be the case. It tends to make stocks cheaper for small shareholders. Most of the stock in the Sensex have announced a stock split. HDFC Bank, Axis Bank, Hindustan Unilever, Tata Motors, ITC etc.
Buy back is another type of corporate action in which company buys back its stock from shareholders in an effort to decrease the number of outstanding shares thereby increasing the price.
Types of Corporate actions
Mandatory Corporate action:
In this type of corporate action are approved by the board of directors that affects all shareholders. Other examples of mandatory corporate actions include stock splits, mergers, return of capital, bonus issue, asset ID change, and spinoffs.
Voluntary Corporate Action:
In a voluntary corporate action the shareholders are given option to elect or participate in the action. An example of a voluntary corporate action is a tender offer if there is a buyback announced.
Several multinational companies increase their stake in their Indian company, which is when shareholders tender their shares to such companies. A classic example is the recent hike by Unilever Brothers in HUL. The company shareholders participted by tendering their shares at a price of Rs 700 per share to Unilver Brothers, UK.
Types of Voluntary actions include rights issue, making buyback offers to the share holders while delisting the company from the stock exchange etc.
Mandatory with Choice Corporate Action:
In this corporate action shareholders are given a option to choose among several options. Say for example they can have the option to choose either cash dividend or stock dividend. If case shareholders don't submit in a given time then default option will be applied.
Important to inform the stock exchanges of corporate action
Every corporate action must be intimated to the stock exchanges. For example, if the company is issuing a rights share, and ahead of the board meeting to consider the same, a notice must be sent to the exchanges informing them of the same. This is extremely important so as to avoid a clsh with the listings agreement. Compliance remains of utmost importance ahead of any corporate action. In the end let us make a list of all the corporate actions:
1) Rights issue
2) Bonus issue
3) Takeover, merger, acquisitions
4) Quartely results
5) Interim or annual dividend
6) Appointments, including board members or member
7) Remuneration chnages
8) Any other important annnouncements.