Glossary: Corporate Action Terminology
This glossary covers the key terms you'll encounter when tracking corporate actions. Definitions are practical, focused on what matters for investment decisions.
Accelerated Share Repurchase (ASR): A buyback program where a company pays an investment bank upfront to immediately retire shares, with final share count adjusted later based on average price during the execution period.
Activist Investor: A shareholder (often a hedge fund) who acquires a significant stake and publicly pushes for changes like board seats, asset sales, or strategic shifts—typically disclosed via Schedule 13D filing.
AGM (Annual General Meeting): Yearly shareholder meeting where directors are elected, executive compensation is voted on, and shareholder proposals are considered—proxy materials distributed via DEF 14A.
Beneficial Owner: Any person or entity with voting or investment power over shares, regardless of whose name appears on the registration—triggers SEC disclosure requirements at 5% threshold.
Break Fee (Termination Fee): Payment from the target company to acquirer if the deal fails due to the target backing out or accepting a higher bid—typically 2-4% of deal value.
Carve-Out (Equity Carve-Out): Partial spin-off where the parent sells a minority stake in a subsidiary through an IPO while retaining majority control—FIS carved out Worldpay to GTCR for $11.7 billion in 2024.
Chapter 7 Bankruptcy: Liquidation bankruptcy where company assets are sold and proceeds distributed to creditors by priority—common shareholders typically receive nothing.
Chapter 11 Bankruptcy: Reorganization bankruptcy where the company continues operating while restructuring debt—old common stock usually cancelled and worthless.
Consideration: What target shareholders receive in an acquisition—can be cash, acquirer stock, or a combination (mixed consideration).
Dead Hand Poison Pill: A shareholder rights plan that can only be redeemed by incumbent directors, not successors—designed to prevent removal of the board to disable the pill.
DEF 14A: The definitive proxy statement filed with the SEC containing information for shareholder votes—includes executive compensation, board nominees, and shareholder proposals.
Dilution: Reduction in existing shareholders' ownership percentage when new shares are issued—occurs in rights issues, secondary offerings, and stock-based acquisitions.
DRIP (Dividend Reinvestment Plan): Program allowing shareholders to automatically reinvest cash dividends into additional shares, often without commission—dividends are still taxable when received.
Ex-Dividend Date: The first day a stock trades without entitlement to the recently announced dividend—under T+1 settlement, this equals the record date.
Flip-In (Poison Pill): Rights plan provision allowing existing shareholders (except the hostile acquirer) to purchase additional shares at a discount if someone crosses a threshold—dilutes the acquirer's stake.
Form 4: SEC filing required within 2 business days when officers, directors, or 10%+ owners buy or sell company stock—key source for insider transaction monitoring.
Form 8-K: SEC filing for material events, due within 4 business days—covers M&A agreements, executive departures, cybersecurity incidents, and other significant developments.
Forward Stock Split: Division of existing shares into more shares at a proportionally lower price—Tesla's 3-for-1 split converted each share into three shares at one-third the price.
Merger Spread: The difference between the target stock's current price and the deal price—represents the annualized return if the deal closes as expected minus the loss if it breaks.
OCC (Options Clearing Corporation): The entity that standardizes and guarantees options contracts—issues adjustment memos when corporate actions affect option terms.
Open Market Repurchase: Standard buyback method where a company purchases its own shares on the open market, subject to Rule 10b-18 safe harbor limits on daily volume and timing.
Poison Pill (Shareholder Rights Plan): Defensive mechanism that triggers massive dilution if an acquirer crosses an ownership threshold without board approval—effectively prevents hostile takeovers.
Premium: The percentage above the target's pre-announcement stock price that an acquirer offers—average premium is approximately 36% relative to price 7 days before announcement.
Proxy: A shareholder's authorization for someone else to vote their shares—voting typically covers director elections, executive compensation (say-on-pay), and shareholder proposals.
Qualified Dividend: A dividend eligible for lower capital gains tax rates (0%, 15%, or 20%) rather than ordinary income rates—requires 61-day holding period around ex-dividend date.
Quorum: The minimum shareholder representation required for a valid vote—typically 50%+ of outstanding shares present in person or by proxy.
Record Date: The date determining which shareholders are entitled to receive a dividend or vote at a meeting—under T+1, this equals the ex-dividend date for dividends.
Return of Capital: A distribution that returns shareholders' invested capital rather than earnings—not immediately taxable but reduces cost basis, common with REITs and MLPs.
Reverse Stock Split: Consolidation of existing shares into fewer shares at a proportionally higher price—often used by companies trading below $1 to maintain exchange listing.
Reverse Break Fee: Payment from acquirer to target if the deal fails due to the acquirer backing out—compensates the target for opportunity cost and deal expenses.
Rights Issue: Offering allowing existing shareholders to purchase additional shares at a discount to market price, proportional to their current holdings—non-participation results in dilution.
Rule 10b-18: SEC safe harbor rule providing guidelines for buyback timing and volume—limits purchases to 25% of average daily volume and restricts first/last 30 minutes of trading.
Schedule 13D: SEC filing required within 5 business days when acquiring 5%+ of a company with intent to influence—discloses purpose, funding source, and any plans for change.
Schedule 13G: Simplified SEC filing for passive investors crossing 5% threshold—available to qualified institutional investors and those with no intent to influence the company.
Spin-Off: Tax-free distribution of subsidiary shares to parent company shareholders on a pro-rata basis—Abbott spun off AbbVie at 1:1 ratio in 2013.
Split-Off: Separation where shareholders exchange parent shares for subsidiary shares (rather than receiving both)—GE offered shareholders exchange for Synchrony Financial shares in 2015.
Tender Offer: Public offer to purchase shares directly from shareholders at a specified price, usually at a premium—can be used for buybacks or acquisitions.
TERP (Theoretical Ex-Rights Price): The expected stock price after a rights issue, calculated as the weighted average of existing share price and rights subscription price.
Last updated: December 2025. Terms and regulations evolve—verify current requirements for specific situations.