Spin-Offs and When-Issued Trading

From Scott Cutler: Yesterday marked the first day of “when issued” trading for Time Warner Inc.’s (TWX) spin-off distribution of its ownership interest of Time Warner Cable Inc. (TWC). Unlike an initial public offering, a spin is unique because the market has the ability to get an early feel for how the companies will trade after the transaction. Both NYSE and NYSE Amex consistently use when-issued trading which benefits both the investors and the listed companies.

Beginning two days prior to the established record date of the spin and continuing through the distribution date of the shares, the Designated Market Maker and other market participants work to establish the correct valuation for the newly formed companies. The ability for the bankers and the market makers and the broker/dealer representatives to communicate with each other and work together to determine the appropriate trading price makes this process as seamless as possible for everyone. The markets that don’t use when-issued trading are overly susceptible to hiccups on the day of distribution and after.

I would argue that our 99% capture rate of spin-offs from NYSE listed companies reinforces the value-add of a when-issued market, and I predict that we will see more spins as well as carve-outs and divestitures in the coming months. Similar to spins, the NYSE has a lot of experience with carve-outs as evidenced by the recent carve-out of Mead Johnson Nutrition (MJN) from Bristol-Myers Squibb (BMY). There are many conglomerates looking at their portfolio of assets to determine whether they are getting full credit for the value of those assets within the group or if they would be better valued as stand-alone entities. While the current economic environment is tough, it also offers opportunities. Those that go early in the cycle will have great potential to build a solid investor base and to maximize the value of their portfolios.

Comments

[Robert DiAl...:]

Oh the pain of the longer term market. We wait and hope and hang on for now.

Mar 29 09:13 AM