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Why KAR Auction Services "Plummeted" 55.5% in June

Steve Symington, The Motley Fool

What happened

Shares of KAR Auction Services (NYSE: KAR) plunged 55.5% in June, according to data from S&P Global Market Intelligence, but that's only because the vehicle auction services company completed the spinoff of its IAA (NYSE: IAA) salvage auction business, which it first announced in early 2018. IAA, for its part, is now a publicly traded company listed on the New York Stock Exchange and consists of each of the pre-separation salvage auction businesses of KAR: Insurance Auto Auctions in the U.S., Impact Auto Auctions in Canada, and HBC Vehicle Services Limited in the United Kingdom.

Meanwhile, KAR still operates its remaining physical, online, and other digital whole car auction marketplaces and related services like inspections, fleet management solutions, and dealer floorplan financing.

A gavel and a car key

IMAGE SOURCE: GETTY IMAGES

So what

To be clear, KAR shareholders did not lose more than half of their investments during the spinoff. Rather, KAR investors kept their existing number of KAR shares, but were also given a single IAA share for every KAR share held as of 5:00 p.m. on the record date of June 18, 2019, in effect making the spinoff a zero-sum game.

Now what

However, while KAR (and no IAA) shareholders technically saw no difference in the dollar balance of their brokerage accounts, KAR management believes the split will create shareholder value over the long run.

KAR chairman and CEO Jim Hallett called it the "beginning of a new era for KAR and our investors, employees and diverse customers around the globe," leaving both companies better positioned to accelerate their respective strategic growth initiatives.

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Steve Symington has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.