Financial Markets Book Financial Markets For The Rest Of Us
An Easy Guide To Money, Bonds, Futures, Stocks, Options, And Mutual Funds
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by Robert Hashemian

Page 184

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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