Inquiry and summary posted by
Anita Feidler, Corporate Executive Board, on September 1, 1999
I'm trying to determine whether the SEC or some other regulatory body
is responsible for the legal definitions of several divestiture techniques.
Specifically, the techniques are equity carve-outs, spin-offs, and tracking
stocks. I've done some searches of the SEC website, the Code of Federal
Regulations and the Federal Register, with no luck. What I'm trying to
get at is... when a company files an S-1 to sell stock to divest a division
or subsidiary, how does one determine whether it is a carve out, spin-off,
or tracking stock?
I'm also trying to find out if the SEC keeps statistics on how many of
each divestiture is executed each year.
I find their (SEC) website difficult to search and have never had much
luck contacting them on the telephone. Any leads would be greatly appreciated.
Please respond to me directly, since I receive the list in digest format
(I'll summarize the responses). Thanks in advance...
Thanks to those of you (Gary Klein, Richard Drezen,
and Janet Hartmann) who helped me understand just what the SEC does and
doesn't do. The responses I received are below. In addition to those
responses, I did e-mail the help desk and have included their reply also
(they responded within a few hours, fyi)
I believe those terms are vernacular and not regulated. However, I have
had terrific luck e-mailing the SEC help desk. I think it's help@sec.gov
but you can double check on their web site. I have usually gotten a clear
answer in less than one day. Also, there are lots of articles and even
some books that explain the definitions and tax ramifications
Anita:
You will have to get this from the SEC directly. I suggest you call the
SEC Press office and ask for either Chris Ullman or John Heine. Both are
very helpful.
FASB/Financial Accounting Standards Board has more to say about accounting
for the changes between the parent & foster child after the spinout,
than the SEC.
Generally speaking, the SEC does not care what you, your shareholders,
the public relations department, the lawyers or the stock analysts call
it. But the SEC requires you to describe the equity transactions on the
proper forms, and describe how the old/new companies are allocating the
assets, liabilities, debts, shareholders equity, and the voting rights.
The Internal Revenue Service gets involved in reviewing the spin-offs,
when the parent company is asking for a specific type of tax treatment.
But again, they are more concerned about the substance of the transaction
& accounting treatments, and probably care very little of what you
call it.
TRACKING STOCK is basically more a creation of companies working to find
loopholes of stock exchanges, rather than being allowed by any specific
Federal agency.
A stock analyst probably cares more about the initial separation:
-- are the shares of the new firm being given to the shareholders of
the old firm (such as when ATT broke up and distributed shares in the
Seven Baby Bell Sisters in 1984)?
-- is the parent company spinning off the unit in stages: selling 10
or 20% to the public for cash from an initial offering, while retaining
the majority of stock, and then gradually spinning off shares to the
owners of the parents' stock?
-- carving out a unit that was previously wholly owned, declaring it
to be a semi-autonomous unit, but offer the shares as a "tracking stock"
which the courts have not determined how unique are the claims of the
shareholders against the parent/child (such as USX issuing shares for
USX-Steel, USX-Marathon Oil and USX-Delphi).
-- or doing combinations of the above, such as ATT when it got rid
of NCR, ATT when it divested itself of Lucent Technologies, and ATT
when it created a tracking stock for its cable operations after acquiring
TCI Cable.
The possibilities of what someone calls it, and how a company executes
are limitless.
Since we do not have a Judith Martin/Miss Manners of the stock exchanges,
I doubt that you will find any agreement on what folks call each of the
various separations that ATT has used over the years in its corporate
acquisitions & spin offs, step children, carve-outs, tracking stocks.
Ms. Feidler
Thank you for contacting the SEC. These terms are NOT defined under the
federal securities laws.
The techniques are reflected in common business terminology, which in
and of itself has no formal definitions. The SEC's mandate is to ensure
that all required information is disclosed. Labeling is left to others.
