Contrast of an action

The counter-split of a  share  is a type of usual operation in finance and that consists in reducing the number of shares of a company and, consequently, varying the  nominal value of the same by increasing it. By definition, a contrasplit is the operation opposite to the split of an action , since its main objective is to result in a smaller number of shares with a higher nominal value than the start.

Usually they are used against split of shares in situations in which companies try to increase the value of their shares. This happens for different reasons, such as when several previous splits are carried out or if the price per share is considered to be low and wants to be increased to hinder the entry of new shareholders.

As in the case of splits, these types of financial mechanisms do not harm the holders of the actions on which they are carried out, because this will simply have a smaller number of shares in their portfolio but there will be acquired an increase in value proportional to said decrease.

The same happens with a split split, with splits, although the former tend to be less common in the financial markets. They do not affect the configuration or structure of the shareholders of the companies when carrying out the corresponding mathematical calculations, but rather establish an equivalence between the situation prior to the operation and the subsequent one.

Example of a counter split of an action

Take the case of a company or firm B that intends to increase the nominal value of its shares by 200%. It will happen that the number of these will be reduced by half while the value of each share will be doubled with respect to the initial value.

Company B would initially have a total of 100 shares at 4 euros per share and proposes, by means of a split counter, to increase its nominal value by 200%. Because of this operation, firm B will see the number of shares reduced by half while simultaneously their individual value doubles, following the same proportion. We would have 50 shares left at 8 euros per share (100/2 and 4 × 2).

byAbdullah Sam
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