Voluntary corporate actions are events initiated by public companies that can bring an actual change to a company's securities or financial composition. As a shareholder, you'll receive a notification from Say if one of the companies you currently invest in initiates or is the target of a voluntary corporate action.
Unlike corporate and fund proxy events which follow an annual or semi-annual cadence, voluntary corporate actions can take place ad-hoc at any time during the calendar year. Voluntary corporate actions are completely optional -- meaning that if you elect "No I'm not interested" in your election form or even completely ignore the notification -- no material change will occur to your investment.
Voluntary corporate actions can be confusing to even the most seasoned investors, so we've put together a brief guide to give you more information about the actual offer behind your notification:
An Offer to Purchase is when a separate entity publicly and directly makes an offer to the shareholders of another firm (the target firm) to buy their stock, usually to try to take control of the target company. In this case, shareholders of the target firm are eligible to participate in the corporate action by selling their shares to the third party entity. Offers to purchase may be conducted in a variety of auction styles including the Dutch auction, where the purchase price is not determined by the third party until all investors have placed their bid or the amount they are willing to buy in terms of quantity and price, and the tender offer, where the purchase price is a fixed value that is often times above the current market price. One of the benefits of Offers to Purchase (and Buybacks) for participating shareholders is the opportunity to trade without incurring any dealing costs.
Buybacks occur when a company or fund offers to repurchase their own outstanding shares back from their shareholders. Companies may buy back shares for a variety of reasons, including increasing the value of remaining shares available by reducing the supply of shares or to prevent other entities from taking a controlling stake. Buybacks, just as Offers to Purchase, may be conducted via a dutch auction, tender offer, or other specific process as outlined by the company. One of the benefits of Buybacks (and Offers to Purchase) for participating shareholders is the opportunity to trade without incurring any dealing costs.
Odd Lot offers are a method of selling and purchasing shares between companies and their shareholders who own less than 100 shares of the company, otherwise known as an "odd lot." Companies and funds extend odd lot offers in an attempt to reduce the number of odd lots in their capitalization table and therefore decrease their resources dedicated to servicing small shareholder accounts. Odd Lot offers also benefit participating shareholders as the offer is an opportunity to sell their odd lot or purchase a full lot without paying brokerage fees. Shareholders can wind up with odd lot shares in a number of ways, such as through reinvesting dividends or a reverse stock split. Although the company wants to reduce the number of odd lot shareholder accounts, there is no way for a company to enforce the exchange. Odd lot offers are still completely voluntary and any shareholder can choose to continue holding an odd lot with no repercussion.
Exchange offers are performed when a firm offers to give one security to their shareholders in exchange for another security. The security given to shareholders in exchange may be issued by the same firm, for example an exchange of common stock in return for preferred stock of the same company, or may be a security of an entirely different firm, in the event of a merger or acquisition. Mergers and acquisitions are often the cause of an exchange offer where company A may be acquired by company B, and company A shareholders can receive stock of company B in exchange for their stock in company A that will no longer exist after the acquisition.
A rights issue occurs when an issuer performs a distribution of a security, privilege, or a subscription right that gives their shareholders an entitlement or right to take part in a future event. Most often, the future event is an opportunity where shareholders can exercise their right and purchase pro-rata shares at a specific price within a specific period (usually 16 to 30 days). The accepting of any rights issue is completely voluntary and up to the shareholder’s discretion to participate in the offer or not.
Consent Solicitations are a method used by companies and funds to request and obtain permission from their shareholders to make a change to the terms of a security agreement. Material changes may be suggested by the issuer when the original terms of indenture or stock structure are no longer in the best interest of the issuer and/or shareholders. Because mutual consent is required for any changes to go into effect, shareholders who grant their consent to the changes may receive a consent payment from the soliciting party.
In certain merger transactions, the merger agreement may offer shareholders of the target corporation the ability to elect their preferred form of consideration (e.g. stock or cash) to receive in exchange for the conversion of their shares in the merger. Shareholders who miss the deadline to elect their preference or don't have a preference for the merger consideration need not worry -- their shares of the target corporation will be converted according to the merger agreement's default consideration and will be equal in value.
Dividend options are just like the regular event of receiving a dividend from a company you invest in -- where a company distributes part of their earnings to shareholders as a reward for holding their stock -- but additionally offer the shareholder receiving the dividend whether they would like to receive the dividend in cash or stock equal to the cash value of the dividend. While receiving a dividend from a dividend stock is mandatory, events like dividend options are completely voluntary. Shareholders will still receive their dividend on schedule in a default form identified by the company.
DRIPs (the acronym for dividend reinvestment plan) are programs from companies and funds that allow shareholders to automatically reinvest their dividends to purchase more of the same stock upon each dividend distribution. DRIPs help shareholders grow their investment little by little over the course of time without the shareholder needing to choose a stock dividend each time dividends are paid out, or paying any brokerage trading fees. In addition to helping shareholders grow their investment without having to pay trading fees, DRIPs can also help companies keep higher cash reserves as they decrease the number of cash dividend distributions.
