Today, reader Amir sent in a question by email. He asked about what happens when a company he owns stock in is acquired, and he is left with a fractional share.
Hello my friend. I am new in the stock market my question is: we assume I am the owner 1 share of company B and my company acquired by company A. The deal is 0.50 share of A for 1 share of B. How will I receive 0.50 share because it is half a share?
Listen to this week's episode for an answer to Amir's question and an explanation of how fractional shares are handled in your investment accounts.
Eric Rosenberg: Ladies and gentleman, boys and girls, children of all ages. Welcome back to the Personal Profitability Podcast. I am your host, Eric Rosenberg. And today, I am excited to offer my first email question that I am going to answer on the Podcast, that came from a reader named Amir.
Amir owns stock in a company that’s been acquired by another company. That’s a very common thing in the stock market. What he wants to know is the company that’s being acquired is offering a half of a share for every existing whole share of the company he already owns. Let’s say, you owned… there is a big news article lately that the company Hines is purchasing Kraft. I’m just making up an example here, this isn’t the real numbers. But in this example, let’s say that if you own stock in Kraft today that’s worth maybe, you know, $10 a share and the bigger company Hines is buying that company and their stock’s at, let’s say $20 a share. So what they are going to do is offer you one half of a Hines share for every existing Kraft share you owned. Now if you owned, let’s say a 100 shares of Kraft, you would get 50 shares of Hines in your portfolio to replace that which happens automatically one day when that deal closes. Your stockbroker will just take care it for you, there’s nothing to do.
What Amir wants to know is, let’s say you owned an odd number of shares. So let’s say you owned five shares of Kraft. What will happen when it’s bought by Hines? So what will happen is you’ll end up with two and half shares in your portfolio. That’s called a fractional share. Anytime you own less than a whole share, that’s the industry term, it’s a fractional share. This is a totally normal thing, it’s nothing to worry about. When you get the fractional shares in your account you’ll see it as 2.5 shares. And it doesn’t even have to be a half a share, it can be any possible permutation of a fraction. It could be .1 or .33 or .6, it doesn’t matter.
And you know in the past, you couldn’t generally buy fractional shares. Now you can for services like Loyal3, it’s a broker that I use and recommend myself. You can buy and sell shares there with zero trade fees and zero commissions. You can’t buy every stock but there’s a pretty good list. It’s a great place to look if you’re starting out investing individual stocks. And there you can buy dollar amounts rather than in rather than in shares. Let’s see you want to buy $400 of a stock. You can do that. That will give you a fractional ownership of a stock because odds are there’s not an even stock price divided by 400 and that’s totally okay.
So Amir, what will happen is when you are ready to sell your shares, depending on your brokerage, the way my brokerage does it, the whole shares will go through on one transaction, will show up as one line on your statement. And the fractional share will show up as the second line on your statement. Some brokers combine them into one. My brokerage that I use for selling fractional shares like this is Charles Schwab; I’ve got an account there as well. And you get your money just like selling in the other stock. You just get that portion of the share price. So if you own half a share that’s worth $10, you’ll get $5 for it. Just the market value.
So that’s the answer. If you have any questions yourself, whether you want to send them in by email or by audio, I would love to hear from you. The next two people who leave audio questions that are featured on this Podcast will get a free copy of the book, “The Happiness of Pursuit” by Chris Guillebeau. I’ve read it myself, it’s a great book. And I’m thrilled to give away the last two copies I have. I have already given away three, so thanks to those people.
If you would like to be featured on this show with your question, just go to personalprofitability.com. Click on the little hamburger icon at the top to get on the menu. Click on the Ask Eric page. You can leave a question there using your computer built-in microphone or cell phone you have where you record audio, you can use that. It's very easy to do, just takes a few seconds.
So hope to hear from you. Thank you very much, Amir for your question. And until I talk to you guys next time. Stay profitable.