Tracking Stock
A share class whose economic value is linked to the performance of a specific subsidiary or business unit within a parent company.
What is Tracking Stock?
Tracking stock (also called targeted stock or letter stock) is a class of common shares issued by a parent company whose dividends and economic value are tied to the financial performance of a specific subsidiary, division, or business unit, rather than the parent company as a whole. Tracking stock shareholders do not hold a direct ownership claim on the tracked unit's assets; the subsidiary remains legally integrated within the parent company. The mechanism allows the market to value a high-growth division separately—potentially at a higher multiple than the parent's blended valuation—while maintaining consolidated corporate control and avoiding the tax consequences of a full spin-off. Tracking stocks have largely fallen out of favor due to governance conflicts between shareholders of different share classes and the complexity of managing multiple capital structures.
Example
General Motors issued tracking stock for its Hughes Electronics subsidiary in the 1980s and 1990s, creating separate share classes (GM Class H shares) whose dividends were tied to Hughes's financial results. By the early 2000s, GM owned several tracking stocks including DirecTV, GM Class H, and GM Class E (EDS). After years of criticism about complexity and governance conflicts, GM sold Hughes Electronics (including DirecTV) to News Corporation in 2003 and retired the tracking stock structure entirely.