Untying the Knots: Simplifying Corporate Actions

Understanding the impact of corporate actions is necessary when contemplating the right investment strategy. This impact is driven by timely awareness, accuracy, and attention to detail. In this blog, S&P's Global Corporate Actions team will discuss some of the most dominant corporate actions announced each month and the roles they take in the marketplace.

The Excise Tax

At this point in time within the financial industry, there aren't many who haven't heard of a Special Purpose Acquisition Company, more commonly referred to as a "SPAC". The news surrounding SPACs have been volatile by nature within the last decade. In a span of two years, narratives can go from praising SPACs and their agile mannerisms in taking a company public or rapid global growth to instead, steep declines and liquidation pressures. The narrative today? The latter.

With the economy at a current standstill, it only makes sense that many companies and SPACs are waiting to IPO. However, the trend we are seeing today isn't so much the 'waiting game', as seen commonly throughout the years, but rather, it is a story of Redemptions.

In 2022 alone, nearly 100 SPACs have called for the redemption of their public shares and termination of their initial business combination. That accounts for almost 40% of all active global SPACs that are currently awaiting their verdict. Is it really the "economy scares" causing so many SPACs to pull out?

While the economy alone contributes to a large portion of the trend, there was a new act enabled in August 2022 by the Biden Administration that can also be seen as a direct link to this Redemption craze.

In comes "The Inflation Reduction Act of 2022".

The Inflation Reduction Act of 2022 (IRA) imposes a 1% excise tax on the repurchase of corporate stock by a publicly traded U.S. corporation following December 31, 2022 [1].

By definition, a "repurchase" includes redemptions, corporate buybacks and other transactions in which the corporation acquires its stock from a shareholder in exchange for cash or property, subject to certain exceptions. Therefore, in short, SPACs have until the last day of the 2022 year to redeem their shares or consummate the de-SPAC transaction before the 1% excise tax takes effect [2].

Although there are exceptions available to the excise tax, it is clear that many SPACs aren't willing to take that chance of coverage. By pulling out their charter expirations from as far ahead as May 2023 in order to meet the December 2022 deadline, the original offer price in the Redemption proposal, reflected within MCA as a Tender Offer event, is very different than the price declared on the mandatory Liquidation. And it is clear that the distribution amount is at a much lesser value than proposed.

SPACs that have undergone such redemption transactions include, but are not limited to:

It's All About the End Result

In November 2022 Meta Materials Inc. (META) announced the approval of its distribution of 100% common stock of META's wholly owned subsidiary, Next Bridge Hydrocarbons, Inc. to holders of META's Series A Non-Voting Preferred Stock (OTC: MMTLP). Upon completion of the distribution, Next Bridge will be an independent public reporting company and the Next Bridge common stock will not be publicly traded.

Sounds pretty straight-forward, right? Here's where things get tricky:

Upon public announcement for the entire transaction, META has been adament in labeling the event as a "Spin Off", first referenced in their July 2022 announcement, where META sent their Form S-1 filing to the U.S. Securities and Exchange Commission relating to the registration of the common stock of Next Bridge Hydrocarbons, Inc.[3].

Of the six seperate releases catered to the transaction, META titled them all as Spin Offs. But is it really?

According to the agreement, each holder of Series A Preferred Stock as of 4 p.m. ET on December 12, 2022, (Record Date), will be entitled to receive one share of Next Bridge common stock for every one share of Series A Preferred Stock held, payable on December 14th. Upon payment:

• all of the shares of Series A Preferred Stock will be automatically cancelled,
• the holders of such Series A Preferred Stock will cease to have any rights with respect to such shares, and
• the shares of Series A Preferred Stock, MMTLP, will no longer be tradable on the OTC Market [4].

In terms of divestitures, we've heard of Spin-Offs, Split-Offs, Split-Ups, and even Carve-Outs… but in each and every case, either the target company/security remains tradeable or, the target company/security ceases to exist while the newly formed company(ies) begins to publicly trade. Never have we seen a spin-off distribution "spin" its shares into a newly formed company, whereby they remain private and terminate the target security.

What's the big deal?

The "labeling" of Corporate Actions becomes particularly tricky when certain transactions come with different assumptions or expectations. For example, with a "Cash Dividend" in play, holders are expected to receive a cash distribution. Easy. Same idea with a Spin-Off; holders of a certain record date are to receive a stock distribution of some kind. Now, where many transactions falter comes from the concept of entitlements; as in, who is entitled to receive the new shares verse old shares if and when they are selling/buying. According to the OTC Exchange notice:

"Purchases of MMTLP executed after 12/8 will not receive the distribution. Holders of Series A Preferred Stock who sell their shares after the record date but before the distribution date will be required to transfer the shares of Next Bridge common stock received in the distribution to the subsequent purchaser of Series A Preferred Stock [5]."

In a regular Spin-off, such a concept can take back-office teams for a whirlwind of a ride when looking to determine which shares holders should receive since the movement of trades end on the 8th, yet the technical Record Date announced by the Issuer was December 12. Luckily in this case, OTC followed the announcement with a trading halt of MMTLP starting December 9 to avoid any confusion or trading of empty promises.

Nonetheless… there is nothing to consider in this case. With MMTLP to cease trading, this transaction is truly what we consider to be a Mandatory Exchange, whereby holders of a security are required to exchange it for another. Effective December 13, MMTLP will be deleted from the OTC Exchange and the new privately held Next Bridge Hydrocarbons, Inc. shares will be payable the following day.

NYSE v. NASDAQ: GE Spin Off

On November 30, 2022, General Electric Company ("GE") (NYSE: GE) announced that its Board of Directors has approved the previously announced spin-off of its healthcare business, GE Healthcare Holding LLC ("GE HealthCare"). According to recent developments, GE HealthCare is expected to be converted into a corporation and renamed GE HealthCare Technologies Inc. prior to the Spin-Off transaction going into effect. The company is expected to begin trading on Nasdaq on January 4, 2023, under the ticker "GEHC" [6].

The Breakdown by Security Identification:

GE (CUSIP 369604301) is spinning off GE HealthCare (CUSIP 36266G107) through the aforementioned Spin Off transaction on an Ex-Date of January 4, 2023, for all holders on record as of December 16, 2022.

GE will have parallel trading of a When-Issued Security starting December 16 under the ticker 'GE WI' (CUSIP 369604129) with a Due Bill On Date of December 15. This synthetic "When-Issued" security will be used to reflect the actual Ex-Distribution trading price of GE post-Spin Off on NYSE.

Take Care!

Many vendors in the industry are announcing that the GE Spin-Off's resultant security ID is the "synthetic" NYSE-created, When-Issued, security ID; however, this is not the case. The proper resultant security ID tied to the newly created GE HealthCare (GEHC) company will be CUSIP 36266G107, ISIN US36266G1076, which will be trading on the NASDAQ Exchange.

That's A Wrap!

It's been a busy year… and as 2022 finally comes to an end, our S&P Global Corporate Actions Product would like to take a moment to recap a few of the most influential developments that shape the growing MCA service through our corporate action expertise and systematic capabilities.

As we continue to expand our data service, we are determined to build and automate where it counts. Understanding complex corporate actions is where our monthly blog posts shine as our experts dissect different transactions in a familiar and understandable construct to help all level of offices process. Alongside these data experts comes our product experts, where these client and industry specialists take the time to understand what is missing, where growth is required, and how corporate actions can be used to satisfy a broad range of back office complexities found within tax, reference data, and much more.

With over nine different implementations rolled out this year alone, MCA's Security Change Report is one example of a corporate action service directed towards reference data and security masterfiles. Events such as Listings, Delistings, Ticker and Secuity ID Changes, or even Place of Listing Changes are often triggered by underlying corporate actions that result in security masterfile changes than unless tracked in a timely and accurate fashion, cause many firms within the industry with mismatched or incorrect payments, entitlements, and even missed opportunities. With the number of issues we have seen resulting from bad reference data, we knew it was time for a solution.

If you have questions concerning the above or would like to know more about our additional services, please reach out to our Customer Support inbox at managecorporateactions@ihsmarkit.com.

Interested in more? Please find our:

Global Corporate Actions' October 2022 Blog Post

Global Corporate Actions' September 2022 Blog Post

Global Corporate Actions' August 2022 Blog Post

Global Corporate Actions' June 2022 Blog Post

Global Corporate Actions' April 2022 Blog Post

Global Corporate Actions' March 2022 Blog Post

Global Corporate Actions' February 2022 Blog Post

Global Corporate Actions' January 2022 Blog Post

Global Corporate Action's November 2021 Blog Post

Global Corporate Action's October 2021 Blog Post

Global Corporate Action's September 2021 Blog Post

Global Corporate Action's August 2021 Blog Post

Global Corporate Action's July 2021 Blog Post

Global Corporate Action's June 2021 Blog Post

S&P Global provides industry-leading data, software and technology platforms and managed services to tackle some of the most difficult challenges in financial markets. We help our customers better understand complicated markets, reduce risk, operate more efficiently and comply with financial regulation.

This article was published by S&P Global Market Intelligence and not by S&P Global Ratings, which is a separately managed division of S&P Global.