Stocks · Pro · 5 min

Spin-offs, takeovers, delistings

You can explain what happens to your shares in a spin-off, a takeover bid and a delisting, and which choices and deadlines you face.

Three big events

Most of the time, holding a share is quiet. Then, every few years, something big happens. A new stock appears in your account. Someone offers to buy all your shares. Or the company announces it will leave the exchange.

These events can change your position more than years of normal trading. They come with their own rules, choices and deadlines, and your broker's message about them is easy to overlook. This lesson walks through all three.

New shares, offers, exits

Spin-off. In a spin-off, a company separates a division into a new, independently listed company and hands its shares to its own shareholders, for example 1 new share for every 5 held. The parent's share price usually drops by roughly the value that moved into the new company. No cash changes hands, and the total value is about the same at that moment.

Takeover bid. In a takeover bid, a buyer offers to purchase shares from all shareholders, usually at a premium over the market price, in cash, in its own shares or both.

The offer document explains the price, conditions and the acceptance period, during which you can tender your shares.
In the EU, anyone who gains control of a listed company must generally make an offer to all shareholders at a fair price. National law sets the threshold. In Germany it is 30% of the voting rights.
Once a bidder holds a very large majority, it can force out the remaining shareholders for compensation. This is a squeeze-out. In Germany, the general threshold is 95%.
In the US, tender offers must stay open for a minimum period set by SEC rules.

Delisting. In a delisting, a company's shares are removed from the exchange, either because the company asks for it or because it no longer meets the listing standards. Investor.gov notes that delisted shares may still trade over the counter. There, trading is often thin and spreads are wide.

Offer 40, price 39

A fictional company trades at 32. A bidder offers 40 per share in cash, a premium of 25%.

The share jumps to about 39, just below the offer. The gap reflects the risk that the deal fails, for example because regulators block it.
The acceptance period runs for several weeks. Your broker asks whether you want to tender.
If the bidder ends up above the squeeze-out threshold, remaining shareholders are bought out later, sometimes at a different price.

If the deal collapses, the price can fall back towards 32 or below. A shareholder who bought at 39 to collect the last 1 risks losing 7 or more, a lopsided bet that professional investors take only with careful research.

Common mistakes

Ignoring corporate action notices. They contain choices with deadlines.
Treating the offer price as certain. Deals can fail, and the gap to the offer shows that risk.
Holding on in a delisting without a plan. Selling over the counter later can be expensive.
Thinking a spin-off creates value from nothing. It splits existing value into two shares.

The takeaway

Spin-offs hand you new shares, takeovers offer to buy yours, delistings remove the exchange. Each one comes with deadlines you must not miss.

Check yourself

Quick quiz

4 questions. Instant feedback, nothing is saved.

1Tap the stage in which you decide whether to sell your shares to the bidder.

Tap the chart.

During the acceptance period you can tender your shares. Your broker usually informs you and asks for instructions.
2In Germany, at what share of voting rights does a bidder gain control and usually have to make an offer to all shareholders?

Under the German takeover act, control means holding at least 30% of the voting rights. Crossing it triggers a mandatory offer.
3A company spins off a division and you receive 1 new share for every 5 you hold. What usually happens to the parent's share price?

Part of the parent's value now sits in the new company's shares. The total stays roughly the same at the moment of the spin-off.
4A company is delisted from its exchange. What can happen to its shares?

Investor.gov notes that delisted shares may still trade on over-the-counter markets. Trading there can be thin.

of 4 correct.