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time left to expiration. Since warrants are similar to stock options, you
will get a better feel for the mechanics of warrants in the options
chapter.
Tracking Stocks
Sometimes a company with a prospering and growing division or
subsidiary may want to create a pseudo-separation between that
division and the rest of the company. Rather than spinning off that
division altogether, the parent company could treat that division as a
separate entity and offer what is known as a tracking stock on that
division. Tracking stocks are traded in a stock exchange just like other
stocks with their own symbols. However, the shareowners do not have
voting rights and do not own the division; the parent company does.
This means that if that division turns out to be a failure, the
shareholders would have no claims to any value of that division. On the
other hand, the division, showing signs of strength, could finally attain
independence, in which case the shareholders would become the
owners of the newly independent company with voting rights.
Tracking stocks are not as risky as you may think, as most of the
divisions with tracking stocks have large corporations as parents who
can provide them with resources and financial assistance if need be.
One successful example was EDS, which at one point was a division of
General Motors with its own tracking stock. GM finally spun off EDS
completely as an independent company. Other examples include AT&T
Wireless Group, Sprint PCS Group, and Hughes Electronics (tracking
stock of General Motors). …
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