304 6 Mezzanine
ence shares carry a right to a fixed dividend. Holders of preference shares are entitled to
their dividend before the ordinary shareholders. If the company is wound up, it is common
for holders of preference shares to get repaid the par value of their shares before the ordi-
nary shareholders get paid. On the other hand, preference shares do not normally give the
holder the right to vote. Preference shares can also be redeemable or cumulative. Redeem-
able preference shares give the issuer the right to redeem them. Cumulative preference
shares allow the holder to be paid a dividend in a later year if there are insufficient funds to
meet the dividend in an earlier year. Under Swiss law, particular participation rights (Par-
tizipationsscheine) resemble US-type preferred stock (rather than Genussscheine under
German law).^96 Whereas Partizipationsscheine are share-based instruments and their hold-
ers are regarded as owners of the firm, the Genussscheine are debt-based instruments whose
holders are regarded as creditors.^97
Tracking shares (tracking stock, targeted stock) are a particular form of ordinary
shares (or preference shares, as the case may be) that some companies have issued
in addition to their traditional ordinary shares (or common stock).^98 The basic idea
of tracking shares is that the financial interests of their holders are limited to a
specific business unit or operating division of the company.
The company may prefer to issue tracking shares rather than obtain a separate
listing for a subsidiary. A separate listing for a subsidiary would enable the market
to separately value that subsidiary (which – through increased transparency –
might increase the valuation of the parent company) but it would also increase le-
gal constraints on the exercise of control ranging from the increased independency
of the subsidiary’s board from the parent to the rights of minority shareholders.
Tracking shares enable the company to retain full control and have the benefits of
the separate valuation of a division.
The value of tracking shares is designed to “track” or depend on the financial
performance of a certain unit or division of a company rather than the operations
of the company as a whole. For this purpose: the dividends that may be paid to
holders of tracking shares depend on the performance of the business unit or divi-
sion; tracking shares usually carry limited or no voting rights, and holders of
tracking shares typically have limited or no claims on the company’s assets in the
event of liquidation. There is a downside, though: tracking requires a complex
corporate structure which reduces flexibility; shares will, in practice, track the rest
of the company as well; tracking increases conflicts of interest between sharehold-
ers; and tracking makes it more difficult for board members to fulfil their duties.
Tracking stock was first issued by General Motors (GM). When Ross Perot sold EDS to
GM in 1984, part of his consideration was in GM shares (GM-E stock) that financially
tracked the success of EDS rather than that of GM as a whole. In Germany, tracking shares
were first issued in the context of the 2007 IPO of Hamburger Hafen und Logistik AG
(^96) Art. 656a OR.
(^97) See Barthold BM, op cit, pp 234–235.
(^98) Åsbrink P, Spåraktien - ett nytt finansiellt instrument, JT vid Stockholms universitet 12
(2000–01) pp 380–393; Baums T, Spartenorganisation, „tracking stock“ und deutsches
Aktienrecht, Institut für Handels- und Wirtschaftsrecht, Osnabrück, Arbeitspapiere 6
(1995).