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Why Shares of KAR Auction Services Are Moving on Friday

Lou Whiteman, The Motley Fool

What happened

Investors in KAR Auction Services (NYSE: KAR) were in for a surprise on Friday morning, with some data services showing the shares down 61% in morning trading. There's a good explanation for the apparent fall, and fortunately it does not involve shareholders losing more than half of their investments.

So what

Before markets opened on Friday, KAR completed its long-planned spin of its IAA salvage auction business. The company distributed 100% ownership of IAA (NYSE: IAA) to its shareholders, each KAR shareholder receiving one share of IAA common stock for every share of KAR held.

Hands raised at an auction.

Image source: Getty Images.

Shares of KAR closed at $62.08 apiece on Thursday, and after the split are trading at around $24 on Friday, an apparent 60% drop. However, shares of the newly christened IAA are trading at $40.89 at the time of writing, meaning that holders are actually up slightly on the day.

Some financial sites, including Yahoo! Finance, were on top of the spin and adjusted KAR's historical prices accordingly. Others did not, causing the headline-grabbing decline.

Now what

That's not to say KAR hasn't experienced market turbulence in the recent past, with the shares plunging nearly 20% back in February after the company reported quarterly results that disappointed. KAR CEO Jim Hallett in a statement announcing the completion of the spin called it "the beginning of a new era for KAR and our investors."

Post-spin KAR is focused on physical and online whole car auction marketplaces, generating about $2.4 billion in annual revenue on vehicle sales and ancillary services including dealer floor plan financing, logistics, inspections, and fleet management. IAA, meanwhile, is focused on auctions of total loss, damaged, and low-value vehicles in North America and the United Kingdom, generating annual revenue of about $1.3 billion.

The hope is that the two streamlined entities will be able to generate better results than when they were together. Time will tell, but hopefully investors won't have to worry about down-60% days, either now or in the future.

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Lou Whiteman 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.