Tracking stock

Tracking stock (also known as letter stock and targeted stock) is a specialized equity offering issued by a company that is based on the operations of a defined business within the larger organization (such as, for instance, a wholly owned subsidiary of a diversified firm). Therefore, the tracking stock will be traded at a price related to the operations of the specific division of the company being "tracked". Tracking stock is typically limited, or has no voting rights. Often, tracking stock is issued to separate a high-growth (but initially, unprofitable) division from its parent company, while the parent company and its shareholders remain in control of the subsidiary's operations.

A tracking stock is issued from a corporation’s voting common stock as a special class of stock specifically tied to the financial performance of any type of definable business division, including a subsidiary, product line, or geographical territory. Stockholder benefits are confined to that division's earnings, and not to the larger company's overall performance. A parent company will retain a consolidated balance sheet and one board of directors, but issue separate income statements for its common stock and for its tracking stock. Reasons for issuing tracking stock may include attracting capital for atypical mergers and acquisitions, or increasing stock options for key executives.