Re: How to handle secondary IPOs for ASE?

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In Reply to: Re: How to handle secondary IPOs for ASE? posted by Mark on October 25, 1999 at 08:36:23:

: : Hello Mark,

: : I'm currently evaluating the latest version of Fund Manager and I think you have done a very good job. However I would like to ask you a question about an issue that I cannot seem to find an appropriate way to handle.

: : In Greece it is very usual for a company to issue additional IPOs in favour of the old shareholders. For example company A may decide to give 1 new share for every 1 old to existing shareholders for a price lets say $10. That means that a shareholder who owns 100 shares of the company with current price $50, is entitled to 100 more shares for 100x10=$1000. As a result the price of the share after the IPO will be adjusted to (100x50+1000)/200=$30.

: : The question is how should I handle this transaction in FM? The problem is that the S/W permits only splits in which the same factor is used to adjust both shares and prices. However in the above example it is obvious that the shares should be doubled, while the prices should be reduced by 50/30=1.667. Also we have here the issue of the additional cash invested in the company which does not exist in stock splits.

: : Any ideas apart from adjusting manually the past prices?

: : Thanks,
: : Yannis

: Hi Yannis,
: This is an interesting situation. I can see a couple of options:

: 1) Record a purchase of 100 shares at $10/share, and then adjust the closing
: price to $30. Don't record any splits. This will track your ROI effectively,
: but the Fund Performance yields will show poorly.

: 2) Record a 2:1 split, and then also record a negative distribution, or
: account fee for the $1000 you paid for the new shares. This will track
: both your ROI and FP yields properly. This is probably the better option.

: Thanks,
: Mark

Thanks Mark,

I agree that the first solution is the "easy" one. However, with the second solution we would have the past prices adjusted to 1/2 while they should have been adjusted to 1/1.667. Also the same would happen to previous purchases where the purchase prices would be adjusted to 1/2 affecting in the wrong way the cost basis of the current holdings.

Thanks one more time,
Yannis.

Replies:

• Re: How to handle secondary IPOs for ASE? Mark 07:42:06 10/26/99 (0)