Mergers, stock splits, and more | Robinhood

Mergers, stock splits, and more

A corporate action is any activity a company takes that affects shareholders and results in a significant change to the company's stock.

Our Corporate Actions team is committed to making sure the changes that come with corporate actions are seamless for our customers.

We process mandatory corporate actions, including stock splits, mergers, and spinoffs. For mandatory corporate actions, we’ll make sure the necessary adjustments are made in a timely manner, according to the affected company’s wishes.

We also accept orders to participate in voluntary corporate actions like tender offers or buy-backs and rights offerings. This allows shareholders to choose to participate or not in the event. The company can’t act without the shareholder’s response.

Tip

If you have specific questions about the terms of a corporate action, like why it’s happening, reach out to the company’s Investor Relations.

Keep in mind

We’ll temporarily prevent you from trading the affected stock while the Corporate Actions team works to process these changes.

You can stay up to date with recent corporate actions by checking out our Corporate Actions Tracker, which is a curated list of the most relevant corporate actions on Robinhood.

Stock splits

A company performs a stock split to increase or decrease the number of shares it has in the market.

Forward stock split

What happens to the company

When a company decides to execute a forward stock split, the number of outstanding shares will increase, while the stock's price will decrease, and the overall market value of the position will remain the same.

What happens to your shares

The number of shares you own in the company will increase, while the value of each individual share will decrease proportionally.

Reverse stock split

What happens to the company

Similarly, when a corporation executes a reverse stock split, the number of shares in the market will decrease, while the market value for each of those individual shares will increase.

What happens to your shares

The number of shares you own in the company will decrease, while the value of each individual share will increase proportionally.

Remember, the overall value of the position always stays the same in a stock split.

Mergers

Sometimes a company will choose to acquire another company. The buying corporation may choose to perform a cash merger and liquidation, a stock merger, or a cash and stock merger.

Cash merger and liquidation

Let’s say XYZ buys out Y Corp:

  • Now that XYZ controls the shares of Y Corp, they can decide that investors who own shares of Y Corp will receive $10 for each share of Y Corp they own.
  • Y Corp’s shareholders are paid their cash (cash merger) and Y Corp stock stops trading in the market (liquidation).
Stock merger and liquidation

Let’s say XYZ buys out Y Corp:

  • Now that XYZ controls the shares of Y Corp, they can decide that investors who own shares of Y Corp will get 2 shares of XYZ for every 1 share of Y Corp they own.
  • Y Corp shareholders now own XYZ shares (stock merger) and Y Corp stock stops trading in the market (liquidation).
Cash and stock merger

A cash and stock merger simply means the buying company gives the shareholders of the acquired company shares of the buying company and a cash payout.

Spinoffs

Sometimes a company will choose to create a new, independent company under its umbrella. The original company may choose to issue shares of the new independent company to the original company’s shareholders.

Fractional shares

After a stock split, extra shares may be left over, which are known as fractional shares.

A fractional share is a share of equity that is less than the value of 1 full share. Companies have a few options when dealing with fractional shares that result from a corporate action, such as:

  • Issue fractional shares.
  • Pay cash-in-lieu proportional to the value of the fractional shares you own.
  • Round up to the nearest whole share.
  • Pay nothing.
Example

You own 10 shares of XYZ, and XYZ undergoes a 1:3 reverse stock split. You’ll now own 3.33 shares of XYZ.

Cash-in-lieu

Cash-in-lieu is a cash payment made to owners of fractional shares that result from corporate actions. The cash rate is predetermined by the company performing the corporate action, and can be found on the company’s corresponding SEC 8-K document.

You can expect cash-in-lieu payments to settle in your Robinhood investing account about 3-4 weeks after the corporate action has been completed. You’ll find confirmation of this payment in your monthly investing account statements.

Keep in mind

Robinhood typically issues fractional shares instead of paying cash-in-lieu.

Delisting

Delisting simply refers to a stock’s removal from an exchange. Oftentimes when we refer to a stock’s delisting, we mean that it’s been removed from a major exchange and now trades on the OTC markets.

Voluntary corporate actions

The issuing company performing the corporate action decides the terms of the offer. As a shareholder, you’ll get the offer materials and instructions through email or traditional mail. The materials will outline the terms of the event and provide important information, such as the expiration date.

If you'd like to participate, you can make your election directly through the email (or traditional mail) with the terms. Or contact us with the following information and our team can help process your election:

  • The stock symbol for the offer.
  • The number of shares you’d like to participate with.

Note that instructions must be submitted prior to the broker’s expiration date, which is provided in the event emails.

Tender offers or buy-backs

A tender offer invites existing shareholders to tender or sell their shares. Basically, a tender offer is a conditional offer for the company to buy back your shares of the stock. The company making the offer is willing to buy your stock at a predetermined price if you tender them.

Example

Let’s say XYZ has a current stock price of $10 per share. The company presents shareholders with the offer to tender their shares for $12 per share. You can choose to sell your shares back for $12, or just hold on to them with the expectation they're worth more than $12 per share. You’re not obligated to take any action, which is why a tender offer is considered a voluntary corporate action.

To participate, follow the directions in the email and make your election through the voluntary election site.

Warrants

A warrant is an asset that allows its owner to buy stock in the company that issued the warrant at a fixed price, called the exercise or subscription price. Warrants are usually issued for a longer term, with an expiration date several years in the future.

Example

For example, XYZ issues warrants to buy 10 shares of their stock at a $10 strike price and you own one of the warrants. Then 5 years after you receive the warrant, XYZ stock is trading at $20 in the market. You could exercise your warrant and buy your 10 shares at the $10 strike price instead of the $20 market price.

If you'd like to participate, ap with the following information and our team will help process your warrant:

  • The warrant symbol for the offer.
  • The number of shares you’d like to participate with.

Rights offerings

When a company plans to offer new shares of stock to the public, sometimes they’ll issue a rights offering. A rights offering gives existing shareholders an opportunity to purchase shares of the new stocks at a specific price before those shares are offered to the rest of the public. Rights have an expiration date and are issued for a short time only.

Rights are usually issued in proportion to the number of shares you currently hold.

Example

Let’s say you currently hold 100 shares in XYZ, you’ll likely be issued 100 rights. This can differ depending on the specific terms of the corporate action. Participation in a rights offering is voluntary.

If you'd like to participate, contact us with the following information and our team will help process your offer:

  • The rights symbol for the offer.
  • The number of shares you’d like to participate with.
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All investing involves risk.

Brokerage services are offered through Robinhood Financial LLC, (“RHF”) a registered broker-dealer (member SIPC) and clearing services through Robinhood Securities, LLC, (“RHS”) a registered broker dealer (member SIPC). Cryptocurrency services are offered through Robinhood Crypto, LLC (“RHC”) (NMLS ID: 1702840). The Robinhood Money spending account is offered through Robinhood Money, LLC (“RHY”) (NMLS ID: 1990968), a licensed money transmitter. Credit card products are offered by Robinhood Credit, Inc. (“RCT“) (NMLS ID: 1781911 and issued by Coastal Community Bank, pursuant to a license from Visa U.S.A. Inc.

The Robinhood Cash Card is a prepaid card issued by Sutton Bank, Member FDIC, pursuant to a license from Mastercard® International Incorporated. RHF, RHY, RHC and RHS are affiliated entities and wholly owned subsidiaries of Robinhood Markets, Inc. RHF, RHY, RHC and RHS are not banks. Securities products offered by RHF are not FDIC insured and involve risk, including possible loss of principal. Cryptocurrencies held in RHC accounts are not covered by FDIC or SIPC protections and are not regulated by FINRA. RHY products are not subject to SIPC coverage but funds held in the Robinhood Money spending account and Robinhood Cash Card account may be eligible for FDIC pass-through insurance (review the Robinhood Cash Card Agreement and the Robinhood Spending Account Agreement).

Options trading entails significant risk and is not appropriate for all customers. Customers must read and understand the Characteristics and Risks of Standardized Options before engaging in any options trading strategies. Options transactions are often complex and may involve the potential of losing the entire investment in a relatively short period of time. Certain complex options strategies carry additional risk, including the potential for losses that may exceed the original investment amount.

Commission-free trading of stocks, ETFs and options refers to $0 commissions for Robinhood Financial self-directed individual cash or margin brokerage accounts that trade U.S. listed securities and certain OTC securities electronically. Keep in mind, other fees such as trading (non-commission) fees, Gold subscription fees, wire transfer fees, and paper statement fees may apply to your brokerage account. Please see Robinhood Financial's Fee Schedule to learn more.

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