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Corporate Actions And The Role Of a Transfer Agent

Tuesday, May 22, 2018

Why it helps to have someone on your team who's been through it

Your company doesn't go through a merger or spin-off every day. In fact, most companies going through a high-profile corporate action have never been through one before. That's why it helps to have someone on your team who's been through it with countless other companies.

As a transfer agent for many of the world's largest companies, EQ frequently handles high-profile corporate actions. Some are routine, some are highly complex, but no two are exactly alike.

Given the vast amount of experience at EQ, there's nothing we haven't seen.

— Joe Conte, Head of Corporate Actions at EQ

What, exactly, is a corporate action?

A corporate action is any undertaking by an organization, public or private, that impacts your stock, the way it is traded, your bondholders or your shareholders. A corporate action can be as simple as paying a dividend, or as complex as a Reverse Morris Trust transaction. The more complicated events involve the exchange of securities, a new entity, or a new shareholder base being created.

Any corporate action that involves shareholders requires a transfer agent, even if you don't currently have one. If two companies are involved, either company's transfer agent can be chosen to handle the corporate action.

Corporate Actions

  • Mergers
  • Acquisitions
  • Initial & Secondary Public Offerings
  • Spin-offs
  • Dutch Auctions
  • Tender Offers
  • Reorganizations
  • Exchanges
  • Emergence from bankruptcy
  • Corporate rebranding
  • Forward or Reverse Stock Splits

 You only have one opportunity to get it right

Corporate actions can be stressful for everyone involved. There's a high level of complexity, several different entities involved, with lots of moving parts. They require knowledge, excellent communication and perfect timing. If something goes wrong, there are no do-overs.

An experienced transfer agent can take the pressure off the company's shoulders and guide everyone through the process. They work with your legal team, the trading team and the settlement team to make sure everyone fully understands the transaction, what needs to happen and when. Knowing and following best practices for each different type of corporate actions is essential to anticipating and preventing problems. That experience is something a transfer agent can provide.

"Our close working relationships with the various Exchanges and Self-Regulatory Organizations means that we're not just following best practices, we're helping to develop them, particularly in unique situations where there's a lot of complexity involved," says Joe Conte, Head of Corporate Actions, EQ. 

What could possibly go wrong?

Timing issues, miscommunication, and a lack of clearly defined responsibilities can cause expensive delays. "I saw this all the time at the Exchange," says Conte, referencing the 18 years he spent at the NYSE as Head of Corporate Actions. "The company is ready but the paying agent isn't. Or the paying agent has funds but the filing didn't get done in time. Or the whole process is delayed because somebody failed on the listing applications at the Exchanges. There's so much going on that there's no way an issuer can do all this by themselves. It's the transfer agent's job to make sure this event doesn't disrupt your day-to-day business."

We've got the big picture

Communication is the most important aspect of a successful corporate action. With multiple entities involved, everybody had better be on the same page. A transfer agent can orchestrate the process and provide the consistency of a single point of contact.

Most companies rely heavily on their legal advisors to guide them through a corporate action. While your law firm may fully understand your objectives and the legalities of the transaction, depending on the complexity of the transaction, they may not always be familiar with the trading aspect or the settlement aspect. That's where a transfer agent comes in.

Top 6 things to think about

  1. There is no one-size-fits-all process
  2. There's a high level of complexity.
  3. Many entities are involved.
  4. Keeping everyone on the same page is critical.
  5. You have a choice in who handles the process.
  6. You only have one chance to get it right.

A transfer agent that has a lot of experience with corporate actions is in the best position to facilitate the process. "We take a hands-on approach, digging in right from the beginning to understand the terms of the deal and how we think it could be structured to ensure a smooth execution and delivery," says Becky Paulson, VP Account Manager at EQ. "Every deal is different, no matter how boilerplate it looks."

The transfer agent then acts as the conduit from your legal team to the trading team (wherever your stock is traded, or not traded), to the settlement team at the DTC. They know who to talk to and when, what's expected, and how it all has to work. The timing of each step is agreed upon, down to the day.

"Bring in the transfer agent for your corporate action early," advises Conte. "An experienced agent can tell you whether or not the specifics of your transaction are going to work. Once the filing is out there, amending it is not only costly, but can add tremendous confusion to the transaction unnecessarily."

It's not over till the payments go out

Your transfer agent is not just a facilitator, they're a trusted partner acting on your behalf. From up-front strategic thinking to back-office mailings, they should provide guidance, expertise, and a disciplined approach to make sure nothing gets overlooked. In addition to strategic advice, the transfer agent assists with the vital functions of payments, reporting and mailings. Including:

  • Shareholder materials
  • Shareholder communication
  • Processing and mailing of proceeds
  • Advice regarding communication with the Exchanges and Settlement Facilitators
  • Tax reporting
  • Post-merger services

In the end, Conte advises companies to take a best practice approach to any corporate action. "Where there may be inconsistencies with who's handling things at your law firm, or inconsistencies with different rules at the various exchanges, the consistency is the transfer agent handling your corporate action – one reliable source of communication to guide you through the process."

Find out more

See how EQ can help your company's corporate action.

Corporate Events