BizTerm Definition
Tracking Stocks
Full Definition

When a parent company wants to recognize the underlying value of one of its businesses, it can either spin off a portion of the shares of the company to the public, thus establishing a value for the business, or it can issue tracking stock. Unlike the shares of a spin-off, which have claim to the assets and profits of the spun-off company, a tracking share has no such claim. As the term states, the shares are meant to "track" the performance of that particular business. A parent company may choose to issue tracking stock because it wants to retain full voting control over the business or because the assets of the division cannot be easily separated from the parent. Tracking stock is also called letter stock. Examples of tracking stocks are: GME (GM's EDS division), GMH (GM's Hughes division), ZD Net (Ziff Davis's Internet division) and DLJ Direct (Donaldson Lufkin Jenrette's online brokerage business).

Previous Biz Term Next Biz Term