The allocation of free shares consists of a company distributing additional shares free of charge to its current shareholders. This is usually done according to a set ratio, for example, one free share for every ten shares held. In the case of Air Liquide, this strategy aims to strengthen ties with shareholders while increasing the liquidity of the company's shares on the market.
Why Air Liquide distributes free shares
Several reasons motivate the allocation of free shares by Air Liquide:
How does the allocation of free shares work?
The allocation of free shares follows a well-defined process:
Implications for shareholders
Impact on stock value
The grant of free shares increases the total number of shares in circulation. However, it does not increase the total value of the company. Therefore, the value per share decreases in proportion to the number of additional shares distributed. For shareholders, this means that although the number of shares they own increases, the individual value of each share is adjusted downward.
Financial benefits
Tax consequences
The tax consequences of the allocation of free shares may vary depending on the tax laws of different countries. In France, for example:
It is crucial for shareholders to consult a tax advisor to understand the implications specific to their personal situation.
Comparison with other strategies
Cash dividends vs. free actions
Cash dividends and bonus shares are two ways a company can reward its shareholders. Cash dividends provide immediate liquidity to shareholders, while bonus shares increase the number of shares held, providing longer-term earning potential.
Share buyback programs
Unlike granting bonus shares, share repurchase programs reduce the number of shares outstanding, thereby increasing the value of the remaining shares. Share buybacks can signal that company management believes its shares are undervalued, which can reassure investors.
Practical case: example of Air Liquide
Suppose a shareholder holds 100 shares of Air Liquide before the allocation of free shares with a ratio of 1:10. After the grant, this shareholder will own 110 shares. If the share price was €150 before the grant, the theoretical value of the share after the grant would be adjusted according to the new total number of shares.
Scenario before allocation
Post-award scenario
As shown, the total value of the shareholder's position remains the same immediately after the grant, although the number of shares has increased and the price per share has decreased.
Conclusion
The allocation of free shares by Air Liquide is a strategy that offers various benefits to shareholders, while improving the liquidity and visibility of the company. For shareholders, this means an increase in the number of shares held, with specific tax implications to consider. This initiative reflects Air Liquide's ongoing commitment to strengthening its relationship with its shareholders and promoting active participation within the company.
The grant of free shares remains a valuable tool for companies seeking to retain shareholders while strategically adapting their capital structure.