Tracking stock

1. Common stock issued by a parent company that tracks the performance of a particular division without having claim on the assets of the division or the parent company. Also known as "designer stock".

2. A type of security specifically designed to mirror the performance of a larger index.

Investopedia Says:
1. When a parent company issues a tracking stock, all revenues and expenses of the applicable division are separated from the parent company's financial statements and bound to the tracking stock. Oftentimes, this is done to separate a subsidiary's high-growth division from a larger parent company that is presenting losses. The parent company and its shareholders, however, still control the operations of the subsidiary.

2. The most popular tracking stock is the QQQQ, which is an exchange-traded fund that mirrors the returns of the Nasdaq 100 index. Another type of tracking stock is Standard & Poor's depository receipts (SPDRs), which mirror the returns of the S&P 500 index.

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A stock created by a company to follow, or "track," the performance of one of its divisions-typically one that is in a line of business that is fast-growing and commands a higher industry price-to-earnings ratio than the parent's main business; also called letter stock or targeted stock. The objective is to increase value to shareholders, and thereby lower a company's cost of capital. Some companies distribute tracking stock to their existing shareholders. Others sell tracking stock to the investing public, raising additional cash for themselves. Some companies do both. Tracking stock, however, does not typically provide voting rights. Issuing tracking stock is an increasingly popular corporate-financing technique.

Tracking stock, or targeted stock^[1], are specialized equity offerings issued by a company that is based on the operations of a a wholly owned subsidiary of a diversified firm. Therefore the tracking stock will be traded at a price related to the operations of the specific division of the company being "tracked". Tracking stock typically has limited or no voting rights^[1]. Often, the reason for doing so is to separate a high-growth division from a larger parent company. The parent company and its shareholders remain in control of the subsidiary's or unit's operations.

Examples

During the dot-com bubble, some companies that predated the bubble identified their Internet operations as high growth divisions that would benefit from a tracking stock. The best-known example is The Walt Disney Company, which issued a tracking stock for go.com. At around the same time as the bubble ended, Disney retired the tracking stock. AT&T (AWE) and Sprint Corporation (PCS) also established tracking stocks for their cellular telephone operations, but neither of these tracking stocks are still outstanding.

As of 2007, one major company in the United States that still has tracking stocks is Liberty Media. Liberty has three tracking stocks, each of which is divided into two classes.

• Liberty Interactive Group (NASDAQ: LINTA,NASDAQ: LINTB)
• Liberty Capital (NASDAQ: LCAPA, NASDAQ: LCAPB)
• Liberty Entertainment (NASDAQ: LMDIA, NASDAQ: LMDIB)

Among other examples, in 1999 Quantum Corp. issued tracking stock in two subsidiaries: its DLT and Storage Systems Group (DSS) and its Hard Disk Drive Group (HDD). Two years later in 2001, Quantum sold the Hard Disk Drive business to Maxtor and redeemed the HDD tracking stock.

References

1. ^ ^{a b} SEC page on tracking stock.

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