Stub

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Financial Terms and Glossary

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

Why are stub equities considered risky investments?

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

How do stub equities arise in 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.