The following article is adapted and reprinted from the M&A Tax Report, Vol. 9, No. 1, August 2000, Panel Publishers, New York, NY.


By Robert W. Wood

It gets harder and harder to keep up with spinoffs announced, spinoffs concluded, post spinoff activities (some newly spun companies being successful and others struggling mightily. Here is a recent list of what is happening. In the big category goes the closely watched behemoth Lucent Technologies Inc, which recently announced that its enterprise networks group should be spun off by September 30. The name of the newly spun company will be Avaya. This has been in the works for some time, of course, and various officers have already been named for Avaya.

Other recent announcements include that by Triarc, a US holding company, that announced plans to spinoff the company's beverage division to the public. For those who don't know the Triarc name, its beverage brands include Snapple, Mistic and Royal Crown. The new entity is to be labeled Snapple Beverage Group. See Catan, "Triarc Approves Plan To Spin Off Drinks Division," Financial Times (London), June 23, 2000, p. 18. Many M&A Tax Report readers will remember that Triarc's best known Snapple brand, has had a storied history. It was a very hot property (for a cool beverage!) up until the time that Quaker Oats grabbed it for $1.7 billion in cash. Quaker Oats ultimately had to sell its struggling Snapple division to Triarc in 1997 for what can only be described as a bargain basement price: a mere $300 million. Now, it seems, Snapple will have yet another life.

Other recently announced spins include Adaptec Inc., which makes equipment used to manage data in computer disk drives. It will be spinning off its software business. See "Adaptec, Software Arm To Split," Wall Street Journal, June 9, 2000, p. A10.

Moving to the Midwest, Applied Power Inc. has approved a plan to spin off its electronics business. Applied Power, a maker of tools and control systems based in Wisconsin, will then change it's name to Actuant Corp. And will focus on manufacturing industrial tools and supplies, and designing motion control systems. The spun off entity will be an electronics business, with a new name: APW Ltd. See "Applied Power To Spin Off Unit," Wall Street Journal, July 12, 2000, p. A2.

Other spins that have been discussed for a long time (but were in some kind of never land for a time) include Aetna, the nation's largest health benefit's provider. For a time, it seemed that Aetna Inc was simply for sale. Now, the company has announced that it is decidedly not for sale and that it will proceed with a much discussed split up. Exact details of the split are not clear to me, and apparently much of the detail has been kept confidential. Predictably, thought, Aetna says that it hopes to complete all of the deals by the end of this year. Equally predictably, Aetna says that it hopes to avoid tax liabilities! See Bennett, "Aetna Isn't For Sale and Aims To Proceed With Split-Up, CEO Tells Shareholders," Wall Street Journal, May 1, 2000, p. B2.

A few other spins, some overseas, include Britain's Granada Group PLC, which is merging with Compass Group PLC in a stock swap. Thereafter, Granada is to sell to the public as much as 20% of it's media unit. See Goldsmith, "U.K.'s Granada To Merge With Compass and Spin Off TV Unit to Bankroll Deals," Wall Street Journal, May 18, 2000, p. A21. In Canada, BCE Inc and Nortel Networks Corp announced approval for a plan under which BCE will spinoff to shareholders its 35% stake in Nortel. See "BCE Spinoff of Stake in Nortel Is Approved," Wall Street Journal, May 1, 2000 page B18.

Problems in Paradise

Elsewhere, some spins that have already occurred seem to be on shaky ground. Perhaps this argues, in at least some cases, for a revisiting of the business purpose for a spin off (particularly where the asserted business purpose is increases in shareholder value).One such example is Vlasic Foods International, which two years ago was spun off from Campbell Soup Co. Vlasic (which makes pickles and other items), has suffered from continued losses, and is potentially at risk. Interestingly, the report now suggests that Vlasic was set up for disaster.

So that Campbell Soup shareholders would not pay tax on the distribution, the company predictably opted for a tax-free spinoff. But in the process, it burdened Vlasic with $560 million in debt. Campbell allegedly dumped various other food "misfits" into the spin, including such divergent items as an Argentine meat business and a fresh mushroom unit. For details, see Branch, "Prospect Sour At Vlasic Spinoff After Missteps," Wall Street Journal, June 28, 2000, p. B1. As in many such cases, Vlasic did not have its own legal counsel in the spinoff.

And that led to other anomalies. Interestingly, Vlasic was required to enter a non-compete provision with Campbell, refraining for three years from doing any business that overlapped with Campbell Soup's product line. Yet, since the non-compete provision was not reciprocal, Campbell soup felt free to encroach on Vlasic's Swanson Frozen Food territory by selling Campbell Soup's own Pepperidge Farm label of pot pies. These and other business moves, some say, dunked Vlasic in even hotter water.

Another spin that has been having significant trouble emanated from Enron. The troubled now-separate company is Azurix Corp. Azurix made a splash with an IPO that raised $750 million. It was created only a year before that as the first US based global water company. Enron retained 34% ownership, and all looked rosy.

But various water strategies evaporated, and now Azurix has had to dramatically shift focus, targeting contracts to run big municipal water systems no longer. Instead, it is focusing on smaller projects where it already has operations, such as Brazil and Mexico. For details, see "Paddling As Fast As She Can", Business Week, May 1, 2000, p. 90.

Fortunately, other spins have fared much better. Agilent Technologies Inc., spun off from Hewlett-Packard, has had strong fiscal growth and strong sales. See Tran, "H-P Spinoff Agilent Says Profits Jumped 5.7%, Orders Surged 38%," Wall Street Journal, May 17 2000, p. B6.

How to tell just who will succeed and who will not after a spin is not always easy to determine. But some are now attempting to analyze the factors that go into these post spin issues. See "Split Decisions", Smart Money, May 2000, p. 62, reporting on the new "Spin-Off Report Newsletter."

Spinoffs in the News, Vol. 9, No. 1, The M&A Tax Report (August 2000), p. 1.