Overstock.com Inc. (NASDAQ: OSTK) has declared a dividend payable in shares of its Digital Voting Series A-1 Preferred Stock. As the dividend will be payable at a ratio of 1:10, one share of Series A-1 will be issued for every 10 shares of Overstock’s common stock held by investors.
According to Overstock.com’s press release, the company has succeeded in its goal of creating a parallel universe with a legal blockchain-based capital market.
The existing Series A-1 shares currently can be traded on the PRO Securities alternative trading system (ATS) operated by PRO Securities. That ATS is powered by technology owned and licensed to it by Overstock’s majority-owned subsidiary, tZERO Group, which owns PRO Securities. The ATS is the same platform on which tZERO’s security tokens began to be resold among accredited investors earlier this year.
Overstock.com CEO Patrick Byrne said of the coming move:
The approximately 40,000 holders of the currently outstanding ~37 million shares of Overstock will be issued a dividend of ≈3.7 million of these new digital shares to trade in that new capital market. Because the bundle of legal rights represented by each of these new A-1 shares is similar to the bundle of legal rights embodied in shares of our common stock (OSTK) that trades on NASDAQ, I might normally expect these blockchain-based A-1 shares to trade in rough approximation with OSTK. However, our legacy OSTK shares trade in a capital market with trading and settlement mechanisms about which I have long made my criticisms and doubts known to the public, whereas our new blockchain-based A-1 shares trade in a blockchain-based capital market which I believe is resistant to such dynamics. I cannot predict what kind of trading parity, if any, will emerge between the two. Perhaps arbitrageurs will notice and explore such matters, and in the process, punch a wormhole between the universe of legacy NMS and new universe of a blockchain capital market. I am going to be as interested as anyone else to see what the result of that will be.
The mechanics of a stock dividend in this case may act somewhat similar to tracking stocks of the past, but there is no definite outcome on how these securities will trade relative to each other. The notion that it is not a normal trading exchange may only be one issue that might case confusion for its shareholders. The record date for the dividend will be September 23, 2019, and the distribution date for the dividend will be November 15, 2019.
Overstock apparently figured out even ahead of the launch that this was going to be complicated. It has set up a dedicated customer service team to answer shareholder questions regarding this dividend announcement. Situations such as these are not common, and it often takes investors some time to figure out the real mechanics of how a dividend/split will work. In short, interpreting this is all up to each investor, without much help or guidance as Overstock has almost no widespread analyst coverage.
The press release said:
These new shares of Series A-1 to be issued in connection with the Dividend have not been, and are not required to be, registered under the Securities Act of 1933 or applicable state securities laws. Consequently, no secondary resales of such shares will occur until they become eligible for resales under Rule 144 under the Securities Act, or if another exemption from registration is available. The time period after which the Dividend shares will become eligible for Rule 144 varies depending on individual circumstances. In general, it is six months from the payment date for non-affiliate investors, subject to the applicable requirements and limitations of Rule 144. Once secondary resales are permitted, investors are expected to be able to trade shares of the Series A-1 on the PRO Securities ATS, operated by PRO Securities, through a brokerage account established with Dinosaur Financial Group, LLC. More details on that will be made available at a later date.
Shares of Overstock.com have been quite volatile, with the market as a whole and around the ups and downs of cryptocurrencies. The shares initially traded higher, but the last price was up only 1% at $22.30 shortly after the opening bell. It has a 52-week range of $8.96 to $48.00.
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