As a shareholder, what are the pros and cons of a Share Consolidation and Return of Capital?
"The basic theoretical reason for a company to return money to shareholders is that the company doesn't need the money for its own purposes (e.g. investment or working capital). So instead of the company just keeping it in the bank, it hands it back so that shareholders can do what they think fit, e.g. investing it elsewhere. In some cases, particularly ""private equity"" deals, you see companies actively borrowing money to payout to shareholders, on the grounds that they can do so cheaply enough that it will improve overall shareholder returns. The trade-off with this kind of ""leveraging up"" is that it usually makes the business more risky and every so often you see it go wrong, e.g. after an economic downturn. It may still be a rational thing to do, but I'd look at that kind of proposal very carefully. In this case I think things are quite different: the company has sold a valuable asset and has spare cash. It's already going to use some of the money to reduce debt so it doesn't seem like the company is becoming more risky. Overall if the management is recommending it, I would support it. As you say, the share consolidation seems like just a technical measure and you might as well also support that. I think they want to make their share price seem stable over time to people who are looking at it casually and won't be aware of the payout - otherwise it'd suddenly drop by 60p and might give the impression the company had some bad news. The plan is to essentially cancel one share worth ~960p for every payout they make on 16 shares - since 16x60p = 960p payout this should leave the share price broadly unchanged."
It's not all roses, as I understand it, one effect of a tax inversion move is that existing stockholders will get hit with capital gains tax on the stock they hold as part of the conversion process.  Edit: going a bit further, often officers of the corporation are insulated from this tax as they have agreements that the company will pay their tax in the event of such a conversion. Seems like a potential for conflict of interest of officers vs shareholders to me.  It's unknown if this is the case with BK execs. "It's called ""dilution"". Usually it is done to attract more investors, and yes - the existing share holders will get diluted and their share of ownership shrinks. As a shareholder you can affect the board decisions (depends on your stake of ownership), but usually you'll want to attract more investors to keep the company running, so not much you can do to avoid it. The initial investors/employees in a startup company are almost always diluted out. Look at what happened to Steve Jobs at Apple, as an example." My answer is not specific, or even maybe applicable, to Microsoft. Companies don't want to cut dividends. So they have a fixed expense, but the cashflow that funds it might be quite lumpy, or cyclical, depending on the industry. Another, more general, issue is that taking on debt to retire shares is a capital allocation decision. A company needs capital to operate. This is why they went public in the first place, to raise capital. Debt is a cheaper form of capital than equity. Equity holders are last in line in a bankruptcy. Bondholders are at the front of the line. To compensate for this, equity holders require a larger return -- often called a hurdle rate. So why doesn't a company just use cheaper equity, and no debt? Some do. But consider that equity holders participate in the earnings, where bondholders just get the interest, nothing more. And because lenders don't participate in the potential upside, they introduce conditions (debt covenants) to help control their downside exposure. For a company, it's a balance, very much the same as personal finances. A reasonable amount of debt provides low-cost capital, which can be used to produce greater returns. But too much debt, and the covenants are breached, the debt is called due immediately, there's no cash to cover, and wham! bankruptcy. A useful measure, if a bit difficult to calculate, is a company's cost of capital, and the return on that capital. Cost of capital is a blended number taking both equity and debt into account. Good companies earn a return that is greater than their cost of capital. Seems obvious, but many companies don't succeed at this. In cases where this is persistent, the best move for shareholders would be for the company to dissolve and return all the capital. Unfortunately, as in the Railroad Tycoon example above, managers' incentives aren't always well aligned with shareholders, and they allocate capital in ways advantageous to themselves, and not the company. "The calculation and theory are explained in the other answers, but it should be pointed out that the video is the equivalent of watching a magic trick.  The secret is: ""Stock A and B are perfectly negatively correlated.""  The video glasses over that fact that without that fact the risk doesn't drop to zero. The rule is that true diversification does decrease risk. That is why you are advised to spread year investments across small-cap, large-cap, bonds, international, commodities, real estate. Getting two S&P 500 indexes isn't diversification.  Your mix of investments will still have risk, because return and risk are backward calculations, not a guarantee of future performance. Changes that were not anticipated will change future performance. What kind of changes: technology, outsourcing, currency, political, scandal." It seems like you want to compare the company's values not necessarily the stock price.  Why not get the total outstanding shares and the stock price, generate the market cap.  Then you could compare changes to market cap rather than just share price. "As discussed in the comments, the best approach is to make a loan to the company. Make sure you document the terms of the loan including when it is repayable and any interest due. If you want to be able to retrieve the money for personal purposes then just note that it's repayable on demand. In practice if you just transfer money to the company when needed it would probably be treated as an interest-free loan, but even if that's what you want, it's best to document this to avoid any ambiguity. The main alternative would be for the company to issue shares that you would own and ""pay up"" the capital on. This would get the same money into the company, but it'd be harder to get it out again later. You may want to charge interest on the loan. The rate would have to be a reasonable one but you still have a fair amount of latitude in deciding it. Any interest would reduce the profits of the company and be subject to income tax when you receive it. Those profits would otherwise be subject to corporation tax. and then if paid out as a dividend might be subject to some income tax. You'd need to compare the tax rates for the two routes to see which was better; note that you pay less income tax than normal on dividends to account for the fact that corporation tax was already charged." I wouldn't get too caught up with this. Doesn't sound like this is even stock reconciliation, more ensuring the cash you've received for dividends &amp; other corporate actions agrees to your expected entitlements and if not raising claims etc. "I'm in the US, so there may be idiosyncrasies with UK taxes that I'm not familiar with, but here's how I've always treated stock I get as compensation.   Suppose the vested shares are worth X.  If I had X in cash, would I buy my company's stock as an investment?  Usually the answer is no, not because I think the stock will tank, but because there's better things I can do with that cash (pay off debt, unfortunately).  Therefore I sell the shares and use the cash for something else. You have stock options. So suppose the stock value is X but you can buy it for Y.  You can either: Therefore, the math is the same. If you had X in cash, would you buy your company's stock as an investment?  If so, then option 2 is best, because you can get X in stock for a lower cost. (Option 3 might be better if the gain on the stock will be taxed higher, but they're pretty much equivalent if there's no chance that the stock will drop below Y) If not, then option 4 is best since you will likely get more than X-Y from selling the options that by exercising them and selling the stock (since options have time value). If option 4 is not a possibility, then option 1 is best - you pocket X-Y as ""income"" and invest it however you see fit." If a company doesn't take out loans to buy back the shares, is it still a bad move? I don't necessarily see the problem with companies retiring shares.  If the shares of say Apple have a P/E ratio of 10 and the price to book value max of 1. Wouldn't it be a smart move by the company and the share holders assuming the projected net revenue will hold for at least ten years if not increase.   I guess I don't know the true practice of buying back shares but at its core (could be more corrupt), I just don't see it as inherently bad. I don't know about the liquidation. The capital doesn't evaporate, its source just becomes the corporation itself. The corporation becomes the sole shareholder and acts at the behest of the board. The board then decides both board matters and shareholder matters.  Once I talked that through, I realized no one would do this. If the board is in complete control, why clump the ownership together. The directors would be better served by clearly delineating their ownership interests by purchasing shares directly. The bonus share also improves the liquidity however there is some difference in treatment. Lets say a company has 100 shares, of $10 ea. The total capital of the compnay is 100*10 = 1000. Assuming the company is doing well, its share is now available in the market for $100 ea. Now lets say the company has made a profit of $1000 and this also gets factored into the price of $100. Lets say the company decides to keep this $1000 kept as Cash Reserve and is not distributed as dividends.   In a share split say (1:1), the book value of each share is now reduced to $5, the number of shares increase to 200. The share capital stays at 200*5 = 1000. The market value of shares come down to $50 ea.   In a Bonus share issue say (1:1), the funds $1000 are moved from Cash Reserve and transferred to share capital. The book value of each share will remain same as $10, the number of shares increase to 200. The share capital increases to 200*10 = 2000. The market value of shares come down to $50 ea.   So essentially from a liquidity point of view both give the same benefit. As to why some companies issue bonus and not a split, this is because of multiple reasons. A split beyond a point cannot be done, ie $10 can be split to $1 ea but it doesn't look good to make it $0.50. The other reason is there is adequate cash reserve and you want to convert this into share holders capital. Having a larger share holders capital improves some of the health ratios for the compnay. At times bouns is used to play upon that one is getting something free. One of my university professors suggested doing this systematically to get access to shareholder meetings where there is typically a nice dinner involved. As long as the stock price + commission is less than the price of a nice restaurant it's actually not a bad idea. I wouldn't use it to take leverage unless you don't mind loosing your entire investment (this is a possibility as shares are already quite volatile). However, you don't have to take leverage and still trade CFDs. Benefits of doing so: Disadvantages: All corporate gains are taxed at the same rate as corporate income, for the corporate entity, so this actually can be WORSE than the individual capital gains tax rates. There are a lot of things you can do with trading certain asset classes, like opening you up to like-kind re-investment tax perks, but I can't think of anything that helps with stocks. Also, in the US there is now a law against doing things solely to avoid tax if they have no other economic purpose. So be conscious about that, you'll need to be able to rationalize at least a thin excuse for why you jumped through all the hoops. "Note that these used to be a single ""common"" share that has ""split"" (actually a ""special dividend"" but effectively a split). If you owned one share of Google before the split, you had one share giving you X worth of equity in the company and 1 vote. After the split you have two shares giving you the same X worth of equity and 1 vote. In other words, zero change. Buy or sell either depending on how much you value the vote and how much you think others will pay (or not) for that vote in the future.  As Google issues new shares, it'll likely issue more of the new non-voting shares meaning dilution of equity but not dilution of voting power. For most of us, our few votes count for nothing so evaluate this as you will.  Google's founders believe they can do a better job running the company long-term when there are fewer pressures from outside holders who may have only short-term interests in mind. If you disagree, or if you are only interested in the short-term, you probably shouldn't be an owner of Google. As always, evaluate the facts for yourself, your situation, and your beliefs."