Sara Lee Finalizes Hanesbrand Spinoff: Key Issues For Investors

A few days ago Sara Lee Corp. (SLE) finalized the spinoff of Hanesbrands (HBI) to its shareholders. A few gleanings from the updated Form 10:

1. HBI will have only around 95 million shares outstanding. This could cause liquidity issues and exacerbate any short-term pressures on the stock It seems likely that institutions and fund managers might dump a lot of HBI shares given that HBIs debt has been rated ‘junk’ and there is no certainty yet around which index’s HBI will be included in.

2. HBI management will be exceptionally well rewarded. The Hanesbrands Omnibus Incentive Plan of 2006 allows for a total of 13.1 million shares or about 13% of outstanding stock to be issued to directors and employees. Initial awards will be issued on the 15th trading day following the distribution date and the excersise price will be 100% of the fair market value of the stock on that date.

It seems to me that it would be to HBIs management’s advantage for its shares to trade down until their stock options are priced on the 15th trading day following the distribution date.

I intend to hold on to my SLE shares. Also, given how well incentivised HBI's management is going to be to ensure that it outperforms, I may well increase my position in HBI should an opportunity to buy at depressed prices present itself.