Shares of Gafisa SA (ADR) (NYSE:GFA), the Brazil-based residential and commercial construction company, are down 28% at 12:11 p.m. EDT on April 25, 2017, following the announcement of the spinoff and IPO of subsidiary Tenda, to be "on or about" April 27 for shareholders of record.
In general terms, Gafisa says it will sell half of Tenda as part of the spinoff (private equity group Jaguar Real Estate Partners has already agreed to buy a 30% stake) and distribute the other half of the company to existing Gafisa shareholders. According to the company release, here are the important dates to know:
- April 27: Last day to be a shareholder of record of Gafisa shares and be entitled to a stake in Tenda.
- May 4: Expected date Tenda shares will be distributed to Gafisa shareholders. (It will take longer for U.S.-based investors. Keep reading below.)
U.S.-based investors (if you own shares traded on the NYSE, this is you) need to know the following. From the SEC filing describing the spinoff (emphasis mine):
The Tenda shares of common stock that are to be distributed to the ADS Depositary as part of the reduction of Gafisa's capital stock will not be converted into American depositary shares for distribution to the Gafisa ADS holders. At the request of Gafisa, the ADS Depositary will give the Gafisa ADS holders of record as of 5:00 pm (New York City time) on the same date that is established as the Distribution Record Date, or the "Distribution Record Date for Gafisa ADS holders", the opportunity to request to receive in a brokerage or custody account, previously established by such holders in Brazil, the Tenda shares that the ADS Depositary has received from Gafisa in the Gafisa capital stock reduction in respect of the Gafisa shares represented by such Gafisa ADS holders. The ADS Depositary will establish the period to request Tenda shares to be from open of business in New York City on the date that is one business day following the Distribution Record Date for Gafisa ADS holders through close of business in New York City on the 10th business day in New York City following such date, or the "Tenda Share Request Period."
In other words, U.S.-based shareholders won't automatically get shares of Tenda in their brokerage accounts, but must formally request to receive those shares, which must be held in a Brazil-based brokerage account since Tenda won't trade as an ADS on a U.S. stock exchange. If you don't do this, you'll receive a cash distribution once all non-claimed Tenda shares have been sold.
In short, U.S. investors must decide if they want to continue owning Tenda or not, and take steps if they do. Since Tenda won't trade on a U.S. exchange, that means establishing a brokerage or custody account that can hold foreign securities, which your current broker may or may not be able to do. The good news is, Gafisa will send ADS holders of record instructions on how to request and receive Tenda shares. If you just want to receive the cash from the sale of your Tenda stake, you don't have to do anything except wait.