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Stub

A stub refers to a small portion of equity left in a company after a significant restructuring, such as a merger, acquisition, or spin-off. It can also describe the remaining equity interest in a parent company after it spins off a subsidiary, representing a fractional ownership stake in the new company. Stubs are often illiquid and speculative, making them riskier investments compared to larger shares.

Example

After a company spins off a division as an independent entity, the remaining shares in the parent company may be referred to as stub equity, representing a small but potentially valuable part of the reorganized company.

Key points

• Represents a small equity portion after a merger, spin-off, or restructuring.

• Often illiquid and speculative.

• Can refer to a fractional interest in a newly formed entity post-spin-off.

Quick Answers to Curious Questions

They are often illiquid and speculative, with uncertain prospects following corporate restructurings.

Stubs result from spin-offs, mergers, or acquisitions, where the remaining equity interest in a parent or spun-off company represents a small ownership stake.

Risk-tolerant investors looking for potential high-reward opportunities in speculative situations may invest in stub equities.