AppId is over the quota
For my nephew's 13th birthday, I transferred some shares of stock into a UTMA account for him under a dividend reinvestment plan (DRIP), and I've been using the investment as a teaching opportunity. Every time I get a statement or other correspondence about the investment, I forward it to him with a brief note explaining what it is and what it means to him and his investment. This article is my latest email to him about the spin-off notification we received. Others trying to teach children about investing might appreciate reading my correspondence, too. So I lightly edited it to make a bit more cohesive for people without a knowledge of the background, and I offer it to you...
We received a notice of a stock spin-off from Fortune Brands (ticker symbol: FO), and since it affects your holdings, too, I wanted to explain it to you. Fortune Brands owns a bunch of other companies, as I've mentioned. Fortune is the sole owner of Jim Beam, Moen, and Master Lock, for example, so if someone wanted to invest just in one of those companies, they can't - they'd have to buy shares of Fortune Brands. You & I own Fortune Brands, so effectively, we own a proportionate interest in each of the companies Fortune owns. In the notice we received, Fortune's board of directors (whom we elect) has decided to break out one of the companies they own, "Home & Security, Inc," to allow it to trade separately. You and I own share of Fortune Brands, so you and I own a portion of it, too. Fortune Brands could have simply sold the company and either given us the money or reinvested it back into Fortune Brands. Instead, they've decided to distribute the stock, proportionately, to each Fortune Brands shareholder, to do with as we please.
On October 3rd, shares of "Home & Security" will be distributed, and you and I will each get our proportionate share... and the value of Fortune Brands will likely decline by the value of the Fortune Brands Home & Security stock they distribute. In theory, this transaction should have no effect on the immediate value of our holdings - it will just be divided among two smaller companies instead of all held in one larger company. Fortune Brands will still be a huge company, so it's stock price shouldn't reduce by much, and I expect the value of the much smaller "Home & Security" will be small. People will begin to be able to trade in "Home & Security" on September 16th, so after that, we'll have a better idea as to the individual values of the two companies. At that point, we may decide to keep them, or sell one or both of them.
Incidentally, for clarification, a stock "spin-off" is different from a stock "split," in that new shares of an independently-tradeable company will be created and distributed, rather than just changing the value of quantity of shares of an existing company.
About the Author:
Brian Blum is the founder, president, and chief consultant at Maverick Solutions IT, Inc. Maverick Solutions provides technology consulting and support services, primarily to schools, NFPs, and SO/HOs in the New York Metro Area. Maverick Solutions helps clients get more value from their technology budgets. Visit our Website to learn about the services we offer, or read our blog, Maverick Ramblings, for assorted tips, tricks, and information of technology interest.
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