The following article is adapted and reprinted from the M&A Tax Report, Vol. 9, No. 9, April 2001, Panel Publishers, New York, NY.
SPINS AND REVERSE SPINS
By Robert W. Wood Suppose that after a spinoff the constituent companies are put back
together? This hardly seems to require the coining of a new term. Still,
I'm not quite sure what to call it — and the phrase that seems to be getting
popularity is a "spin-in." To me, that phrase makes no sense.
Spin-in? or Reverse Spin?
There are a number of examples of this trend. On January 31, 2001,
Networks, Inc. rejoined its Ticketmaster unit with offspring Ticketmasteronline-CitySearch.
Not too long before that, Dehlia's integrated its iTurf Web operations.
Of course, some spinoffs have been derailed entirely. The Walt Disney Company
announced the closing of its Go.com Web portal, resulting in a $790 million
charge to earnings. Disney had to redeem the internet group's separate
stock. All-in-all an expensive experiment.
Some of this spinning in (or reverse spins or whatever you want to
call them) is a direct function of the internet debacle. No one, it would
seem, is likely to turn down a job today because they would rather have
options in the spinoff than its more stable parent. Many of the spins in
recent memory have been done for precisely that "employees" reason, as
well as the "standalone" panache and separate financing that the leaner
companies wanted to achieve.
Indeed, there was tremendous logic (or so it seemed) behind internet
spinoffs at the height of the dot.com craze. Now, though, there are various
problems that are causing many of these companies to try to come back home
to the parent company. For further details, see Khermouch, Byrnes and Grover,
"Come Back to Papa: Suddenly Spin-offs are Turning into Spin-ins," Business
Week, Feb. 19, 2001, p. 42.
Spins Still Continue
Nevertheless, it would be wrong to characterize Section 355 as on
the ash-heap, or even heading in that direction. Spins are still continuing
on. Shell Transport and Trading, for example, just spun-off a software
start-up in February. See Rigby, "Shell Spins Off Management Systems Arm,"
Financial Times, Feb. 12, 2001, p. 20. Novell, the US software company,
is spinning off a division from Nortel Networks, the equipment maker, and
Accenture, the (badly named!) formerly Arthur Andersen-linked business
consultancy. These three entities are investing $80 million in the venture,
called Volera. See Foremski, "Novell to Spin Off One Division," Financial
Times Weekend, Feb. 3-4, 2001, p. 9.
Plus, AT&T has not backed away from its AT&T Wireless Group
spin, but has instead announced that it will retain as much as $3 billion
(or 5%) of the AT&T Wireless Group stock. Previously, AT&T had
planned to distribute all of the Wireless Group shares to its shareholders.
AT&T Wireless, as we've covered in these pages before, currently trades
as a tracking stock of AT&T. Part of AT&T's restructuring (scheduled
for later this summer) includes the spin of AT&T Wireless. Stock redemptions
after spinoffs, of course, have always been somewhat problematic, but 5%
presumably will not raise any eyebrows. See Solomon, "AT&T to Keep
Wireless-Unit Stake After Spinoff," Wall Street Journal, Feb. 15, 2001,
p. B10.
Foreign Spins Across the border, Telmex, Mexico's largest corporate empire, has
spun off its international mobile phone business. The new company, America
Movil SA, began trading on February 7, 2001 on the New York stock exchange.
See Tricks, "Telmex Spins Off Mobile Phone Arm," Financial Times, Feb.
8, 2001, p. 22. The Telmex break-up is hardly unique to Mexico, being part
of a growing trend by phone companies to spinoff cellular divisions. The
traditional spinoff analysis — that the parts are worth more separately
because management is more focused and investors can focus on the merits
of each entity — certainly applies here. See Luhnow, "Telmex Spinoff Begins
With NYSE Debut," Wall Street Journal, Feb. 7, 2001, p. A18.
Spins and Reverse Spins, Vol. 9, No. 9, The M&A Tax Report
(April 2001), p. 5.
Whatever you call it though — and whatever your view of semantics
— there has been a real proliferation of spinoffs (which we've noted in
these pages repeatedly over the past eight years). Nevertheless, today
many spinoff transactions are being put back together (hence the puzzling
terminology of spin-ins, reverse spins, or whatever).