Average Price following spin-off/demerger

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1

Wondering if anyone who has experienced a demerger/spin-off can chime in here.

Using GSK as an example as this is what I was thinking about, when/if they eventually spin-off the consumer division.

We receive X shares of new company for every X number of GSK shares we own.

What will be the average price of the new shares? And what will be the average price of the original/old shares?

Presumably the average price of the original shares will remain the same, but if these hypothetically lose value, what remains of the original shares would be shown as being at a loss.

Edit: for clarity, if you own shares which you received as part of a demerger/spin-off on Trading212, what is the average cost of those shares as displayed on Trading212?

2

The sum of the value of both shares at the open should in theory equal the value of the single share at the previous close. In reality that might be slightly off.

3

for my own accounting purposes, I treat spin-off and de-mergers as “special dividends” The parent company pays the dividend and you purchase child with that amount.

parent company will almost always loose it’s value pro-rata but since it “paid” a dividend you are not in a loss book keeping wise.

assume company A worth 100 is spinning off 1/4th worth of a department to company B
so you get 25 dividend payment for A whose capital value has now dropped to 75. and you reinvested 25 dividend into buying B which is now your cost for B

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4

Thank you both for the responses. I understand the principle of the spin-off itself and how this may impact the price of the original shares, it was mainly the cost basis/average price I was curious about.

Do either of you have any experience of a demerger on 212?

5

I don’t particularly understand this part, if you are concerned about what is displayed in T212 ui, I really don’t know, never cared about it :slight_smile: despite having some shares that went through de-mergers like pfizer etc.

but essentially your cost is still same, and should not change. in above example, if you’ve paid 50 for the original company A that still is the cost for A

If you are planning to (hopefully) be investing for years to come, I recommend using another software or excel sheet, or google docs for recording your transactions. I’m not blaming T212 here, other premium brokers I use have similar problems. The numbers displayed in ui’s like this in brokers are at best insignificant and often even wrong.

earnings/losses/income/cost values can be calculated in multitudes of different ways, and typically brokers will use the most crude/basic approach.

Even if they provide the bestest of the greatest tools, brokers come and go, and you’ll be switching between them, so it’s nice to have a master record.

edit: there are many good excel/google docs templates around, even different ones for different investor approaches. I personally use Portfolio Performance it might be a bit intimidating at first, but like many other people in this community you’ll get addicted to it in time, and forget about any numbers displayed anywhere else. (it’s open source, i’m neither selling it nor affiliated with it)

6

I have track everything in a spreadsheet which I created which suits my needs, always have done.

So if you have gone through a demerger on Trading212… what is the cost basis of the demerged shares? This is what I want to know :slight_smile: I know my own cost basis can be worked out in a spreadsheet etc.

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7

Have you checked the help section? The cost basis should be on the basis of the demerger as Kali has highlighted. What other means have you seen?

8

The help section only states that you would receive shares. https://helpcentre.trading212.com/hc/en-us/articles/360020001898-Will-I-receive-shares-as-a-result-of-a-merger-spin-off-acquisition-or-stock-dividend-Conversion-of-Shares-

I haven’t seen any other means as I’ve never experienced one. I can’t wrap my head around how Trading 212 would be able to attach a cost to the shares which are spun-off and therefore have an average price on here.

In my mind the average price will either be 0 or the initial value of the shares which are spun-off. I don’t know if the companies attach a cash value to the demerger which 212 will use.

Those who held Daimler shares will have the answer.

9

The same way any other broker does.

10

And do you know how that is done?

11

As Kali put above.

If the company spins off 1/4 and was priced at 100, then after the spin off the A shares are now worth 75 and new B shares 25.

If you bought the A shares before the spin off for 200, then your bookcost of A would drop from 200 to 150, and B would be 50.

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12

Thanks Dougal and Kali. Apologies for my lack of understanding, I feel like this was literally staring me in the face.

I will take Hris’ like of your response as meaning that this is correct…!

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13

Hi Rasputin, I honestly genuinely don’t remember how the value displayed in T212. (I’m not being a snob or something I really really don’t remember because I never paid any attention)

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