The following article is adapted and reprinted from the M&A Tax Report, Vol. 8, No. 10, May 2000, Panel Publishers, New York, NY.


By Robert W. Wood, San Francisco

To the list of ever-growing spinoffs, there are some interesting twists this month. Ziff-Davis has announced plans to spinoff its events business. A holding company for the events business will be created, borrowing about $400 million to retire remaining Ziff-Davis debt plus paying a cash dividend to Ziff-Davis shareholders. The holding company is then to be spun off as a separately traded entity, with equity being distributed to Ziff-Davis shareholders. See Rose, "Ziff-Davis to Spin Off Events Business, Merge What Is Left of Firm Into ZDNet," Wall Street Journal, March 7, 2000, p. B10.

This Ziff-Davis plan has some interesting twists. Perhaps most interesting is the fact that after the spinoff, Ziff-Davis as a media company will essentially cease to exist, being merged into ZDNet Group, the company's internet unit. That unit has been trading as a tracking stock of Ziff-Davis. Softbank is to have about 70% of the spun off events business, plus about 45% of the merged Ziff-Davis and ZDNet (hey, talk about interlocking shareholders!). It's an interesting transaction that should be watched.

One of the biggest deals, of course, involved Aetna, Inc., which is to split into two businesses, a financial-services arm and a health-care arm. Plus, Aetna is to sell off certain pieces of its international business. For those who know how long some of these deals take (particularly the time involved in getting a ruling), it should be noted that all of this is supposed to happen by year-end. See Gentry and Deogun, "Aetna to Split Into Two Separate Businesses," Wall Street Journal, March 13, 2000, p. A4.

Aetna has been in the news lately over various things, including the resignation of former Chairman Richard Huber, disappointing stock performance, etc. But the latest plan to break the company up is a huge transaction. From a business purpose perspective, it would seem that Aetna should have a relatively easy time convincing the Service about the need to do this. After all, Aetna has significant institutional investors, and they apparently have been pressuring the company to take bold and immediate steps to boost share price — including breaking up the company and selling off pieces. Id.

We have no inside knowledge of the transaction, but the public reports indicate that Aetna shareholders on the stock ledger now will end up with shares in both companies. Of course, the reports suggest that the spinoff will be tax-free (big surprise!), so current shareholders will not bear any tax. Id. The two publicly-traded companies that will exist after the spin are making news not only in the US but elsewhere, both because of Aetna's status and size and because of continuing movement in the healthcare and related industries. See Michaels, "Aetna to Split Into Two Companies," Financial Times, March 13, 2000, p. 17.

Internet Wizards, Too?

As if these spins were not significant enough, it appears that spinoffs are reaching the internet age with the announcement that is considering spinning off fixed assets. As the leading online retailer, Jeff Bezos announced that his now behemoth baby might spinoff fixed assets to focus purely on managing its brand. See Edgecliffe-Johnson, " Considers Spinning Off Fixed Assets," Financial Times, April 4, 2000, p. 22.

But on the topic of internet businesses, even more significant than the Amazon feeler (at this point we think Bezos' comments were more of a feeler than a commitment), was the announcement that three leading high-tech finance and consultancy companies have joined a global joint venture to develop corporate spinoffs. Develop spinoffs? Although we hesitate to use the word "tax shelters" in this context, developing spinoffs sounds a bit confusing. Still, there is clearly money to be made, or these people wouldn't be entering the fray. Specifically, the three are well-known Silicon Valley venture capital firm Kleiner Perkins Caufield & Byers. The other participants are well-known buy-out firm Texas Pacific Group and the third is management consultancy group Bain & Co. See "Global Venture to Develop Spin-offs," Financial Times, April 3, 2000, p. 16.

It is not exactly clear (at least to me), what this consortium is supposed to do, but maybe that's implicit in the name that these three high-powered entities have picked for the new spinoff development venture: Evolution. Supposedly it is already a $100 million company, but we'll have to wait to see what it will do beyond taking equity stakes (supposedly about 20% each on average) in companies from cradle to IPO. See Grande, "Internet Venture to Aid Spin-offs," Financial Times, April 3, 2000, p. 20.

Somewhat more pedestrian was the announcement by Reynolds & Reynolds Co. that it would sell its business forms printing operation. The investment bank involved is Credit Suisse Group, and despite the "intends to sell" headlines, the plan is to either sell or spinoff (there's that dichotomy again) the business forms printing operation. It is supposedly a whopping $730 million a year business. See White, "Reynolds & Reynolds Intends to Sell Its Business-Forms Printing Operation," Wall Street Journal, April 10, 2000, p. A4. Meanwhile, aerospace and defense giant Raytheon has announced that it is considering a spinoff (or sale!) of its engineering and construction unit. See "Raytheon Considers Spin-off," Financial Times, April 12, 2000, p. A24.

Foreign Spins

Across the Pacific, the internet deals continue to sizzle. Chinese Merchants Bank, a mainland Chinese commercial bank, announced plans to spinoff an internet banking subsidiary. See Kynge, "Chinese Bank to Spin Off Internet Arm," Financial Times, April 18, 2000, p. 7. Meanwhile, across the Atlantic, Spanish telecommunications group Telefónica announced it would spinoff its undersea cable unit before Summer, plus spinoff its global mobile business in the fall. See Burns, "Telefónica to Spin Off Mobile Division," Financial Times Weekend, April 8/9, 2000, p. 8. Next door, Portugal Telecom, Portugal's biggest telecommunications provider, announced a spinoff of its internet business to float a new public company, PT See Wise, "Portugal Telecom to Spin Off and Float Internet Unit," Financial Times, March 10, 2000, p. 16.

Similarly, Swisscom, the flagship telecommunications company in Switzerland, has also announced a spin of its stake (albeit a minority) in the mobile phone business. See Hall, "Swisscom to Spin Off Mobile Stake," Financial Times, April 14, 2000, p. 22. Finally, Fresnius, a fast-growing German healthcare group, announced a spinoff of Fresnius Kabi, a nutrition and infusion therapies unit. Although this is not to occur until 2001, with a public listing between 2001 and 2003, the Kabi unit has significant size ($923 million in sales). The Kabi division was created in 1998 from a merger of the pharmaceuticals division of Fresnius plus the international infusion business of Pharmacia & Upjohn. See Benoit, "Fresnius Spin-off," Financial Times, March 10, 2000, p. 16.

Global Warming

I guess it's safe to say there are more and more spinoffs (whether tax-free or taxable) occurring around the world today. All things considered, this is an area that just won't seem to go away.

Spins: Ever Present, Vol. 8, No. 10, The M&A Tax Report (May 2000), p. 7.