A number of changes were announced across the three major S&P indexes yesterday. Mergers and acquisitions, moves to spinoff companies and violations of eligibility conditions resulted in additions and deletions. Some stocks felt little impact while others were significantly affected these decisions.
Eligibility Conditions
A company needs to fulfill certain criteria to be included in these indexes. For the S&P SmallCap 600, a company’s market capitalization needs to range from $400 million to $1.8 billion. Market capitalization must be between $1.4 billion to $5.9 billion for the S&P MidCap 400 and $5.3 billion or more for the S&P 500.
Among other major criteria: the company needs to have sufficient liquidity and a reasonable price. The ratio of annual dollar value traded to float adjusted market capitalization should be 1 or greater. Moreover, the company should trade at least 250,000 shares in each of the six months leading up to the evaluation date.
For index requirements, a U.S. company needs to possess the following characteristics as well. It should file 10-K annual reports and should not be considered a foreign entity by the SEC. The U.S. portion of fixed assets and revenues must comprise a majority of the total, but need not be above 50%.
The stock should be primarily listed on the NYSE (including NYSE Arca and NYSE MKT), the NASDAQ Global Select Market, the NASDAQ Select Market or the NASDAQ Capital Market. ADRs are not qualified for addition. The public float of the stock should be a minimum of 50%. The trailing four quarters’ average earnings surprise should be positive, along with a mandatory earnings beat in the last reported quarter.
Reasons for Deletion
Companies may be removed from the index when they are participating in mergers and acquisitions or undergoing considerable restructuring due to which they can no longer meet the preset conditions.
Violations of criteria due to other reasons may also result in removal. On occasion, a company may not meet a particular condition for a short period. But the addition criteria do not apply for continued membership on the indexes. This is why companies may not be removed unless conditions demand a change.
Spinoffs Spark Changes
Allegheny Technologies Inc. ATI will take Columbia Pipeline Group Inc.’s place on the S&P 500. Allegheny Technologies will become part of the S&P MidCap 400 and take Unit Corp.’s UNT place. Unit Corp will become part of the S&P SmallCap 600 after trading closes on Jul1.
The reason for this set of changes is that Columbia Pipeline Group is being hived off by NiSource Inc. NI and this spinoff is expected to take place on Jul 1. NiSource will continue to be part of the S&P 500.
Changes in the S&P SmallCap 600,
S&P 500 component Masco Inc. MAS is hiving off TopBuild Corp. BLD. This is why TopBuild will replace Aéropostale Inc. ARO in the S&P SmallCap 600. These changes will take place after trading closes on Jun 30.
Another S&P 500 component Gannett Co. Inc. GCI is hiving off “new” Gannett Co. This stock will take Quiksilver Inc.’s ZQK in the S&P SmallCap 600 and will be called TEGNA Inc. These changes will take place after trading closes on Jun 26.
More Changes and AOL’s Buyout
AOL Inc.’s spot on the S&P MidCap 400 will be taken by Casey’s General Stores Inc. CASY, which is now part of the S&P SmallCap 600. This change has been necessitated by Verizon Corp.’s VZ acquisition of AOL. Casey’s General Stores’ spot on the S&P SmallCap 600 will be taken by Nektar Therapeutics NKTR. These changes will take place after trading closes on Jun 25.
Meanwhile, Peabody Energy Corp.’s BTU place in the S&P MidCap 400 will be taken by Cable ONE Inc. This change is taking place because Graham Holdings Company GHC will hive off CableOne by Jun 30 and this replacement will take place after trading closes on that date.
Additionally, Semtech Corp.’s SMTC spot will be taken by Chemours Co. while Semtech will take Paragon Offshore plc’s PGN spot on the S&P SmallCap 600. This is because S&P 500 component DuPont DD is hiving off Chemours and this change will take place on Jun 30 on which date the transaction will be completed.
Harsco Corp. will take FXCM Inc.’s FXCM spot on the SmallCap 600 and will be replaced by “new” Energizer Holdings Inc. ENR. This is because of a spinoff being affected by Energizer Inc. The parent will rename itself as Edgewell Personal Care Co. after the change.
In Conclusion
Some stocks declined because of these changes. This includes Allegheny which lost 1% in after-hours trading. Unit Corp. and PetroQuest declined 0.7% and 1.9%, respectively. Aeropostale and Peabody each lost 1.1% while Nektar gained 5.2%. Allegeheny lost 1% in after-hours trading. It remains to be seen what medium and long term impact this bunch of changes on all three major S&P indexes.
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