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Why ServiceMaster Global Holdings Stock Just Sank 34% (but Not Really)

Rich Smith, The Motley Fool

What happened

The clock reads 11:45 AM EDT, and shares of ServiceMaster Global Holdings (NYSE: SERV) are either down 34% or maybe down less than 2%, depending on whom you ask. Google Finance says the former, while Yahoo! Finance reports the latter. 

The truth is something much more interesting.

Words "spin off" balanced on a finger.

It's not so much a stock crash as a spinoff. Image source: Getty Images.

So what

This morning, ServiceMaster completed its spinoff of Frontdoor, the parent company of the well-known home warranty provider American Home Shield. From now on, AHS will trade under the symbol FTDR (which, by the way, started its new life as an independent company with a "buy" rating from Compass Point). ServiceMaster, meanwhile, will focus from here on out on providing "residential and commercial services ranging from pest control and janitorial cleaning to restoration services."

Mechanically speaking, the spinoff involved issuing one share of Frontdoor to ServiceMaster shareholders for every two shares of ServiceMaster they owned, essentially splitting off one-third of the company to operate separately -- and explaining why ServiceMaster's market cap declined by about one-third this morning.

(But it didn't, really.)

Now what

Confusing for shareholders? Perhaps for a day or three. But ServiceMaster CEO Nik Varty explained the rationale thusly: "Operating as two powerful, independent, focused companies, ServiceMaster and Frontdoor can now each benefit from increased focus and flexibility to better serve customers, drive organic growth, and unlock significant long-term value for shareholders."

We wish them well with that.

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Rich Smith 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.