Page 30 - Waterfall City Issue 8 August 2024

Waterfall City Finance

portfolio differently than cash dividends positively impacted the share price of the year they are received. In South
and their associated returns. Transactional Capital, demonstrating Africa, investors are charged dividend
the benefit this type of corporate action withholding tax on cash and stock
Stock splits are a type of corporate can have for investors. dividends.
action that we have seen in the
technology space, often subsequent to Mergers and acquisitions are also In the case of a merger, if you receive
those companies enjoying tremendous examples of corporate actions that shares from the acquiring company in
runs in their share price performance. could have a material impact on a exchange for your shares in the target
Google, Amazon, and, more recently, company’s share price. A merger occurs company, you might face capital gains
Nvidia are examples of companies that when two or more companies combine, tax.
split their shares, resulting in an increase and all parties have agreed to the terms.
in shares and a concomitant decrease In this case, one company formally Corporate actions can significantly
in share prices. This makes these stocks surrenders its stock to the other. impact a company’s prospects and
more tradeable due to affordability for Shareholders may interpret a merger in share price, so investors should seek
retail investors. two ways: either as a strategic move for guidance from a financial adviser on
business expansion or as an indication how to interpret a corporate action in
Spinoffs occur when listed companies that the industry is consolidating, the context of the company’s strategic
divest part of their assets. Post-spinoff, compelling the company to absorb focus and what it will mean for their
investors own the original share in their competitors to maintain growth. portfolio returns in the future. An
portfolio plus the newly spun-off share. Investors should carefully consider their adviser can also guide you where there
The decision to undertake a spinoff positions upon the announcement of is an elective corporate action and when
could suggest that the company is a merger or acquisition and whether you are unsure whether the best option
preparing for new growth ventures, the share still meets their investment for your portfolio is cash or shares.
concentrating its efforts on its core requirements when considering their
business or attempting to unlock value. portfolio as a whole. Last but not least, it is essential to
A recent example of the latter was consult a tax professional on the
Transactional Capital’s announcement All of these events have different tax implications of certain corporate
to separately list the We Buy Cars division implications for individual investors. transactions, which could be material,
on the JSE to unlock shareholder value. For example, cash dividends are as highlighted in the case of cash
Thus far, this corporate action has usually considered taxable income in dividends.

28 Waterfall City Issue 8 2024