stock split questions

Steve Greenland steveg@moregruel.net
Tue, 30 Jan 2001 09:34:17 -0600


On 30-Jan-01, 06:48 (CST), Bill Carlson <wwc@wwcnet.nu> wrote: 
> On Tue, Jan 30, 2001 at 02:44:01AM -0800, Dave Peticolas wrote:
> > 
> > 2.  If your stock splits in a ratio that doesn't multiply to give
> >     you an integral number of shares (say 3 for 2 and you have 3 shares),
> >     then you get some cash for the extra share right? Is there a
> >     name for that cash disbursement?
> 
> I have all seen this called "cash in leiu".  What it really is
> (transactionally) is the sale of a small number of shares prior
> to the split so that the split itself works correctly.  Sometimes
> it is the sale of a fractional share after the split transaction
> itself, but I think the prior makes more sense.

The trouble with treating it as a prior sale is that it doesn't
necessarily come to the same answer. Suppose you have a 5/2 split (not
likely, I agree, but just suppose), and you have 9 shares. If you
(notionally) sell 1 share beforehand, you end up with 20 shares. If you
do the split, and then give cash for the fractional share, you end up
with 22 shares (and less cash, of course).

Of course, all the splits I've actually participated in have been 2/1
(which always works) or 3/2 (which isn't affected by the before/after
accounting).

Steve

-- 
steveg@moregruel.net