The following article is adapted from reprinted from the M&A Tax Report, Vol. 8, No. 1, August 1999, Panel Publishers, New York, NY.


By Robert W. Wood, San Francisco

Although the pace of initial public offerings (particularly in the internet field) may not have slowed in 1999, spinoffs in the public sector seem to have slackened. Still, there have been a fair number of transactions reported in the news of late. Between the public sector and private sector, spinoffs have certainly not become unpopular. To the many hundreds of spinoffs over the past couple of years that we've been monitoring, a few new ones (and some recently consummated ones), should be added to the list.

Still Going P

erhaps most notable is Ralston Purina Co. which has long been rumored to be spinning off to its shareholders its struggling Energizer battery operations. Far from the ever-present and viagra-dosed pink Energizer bunny, the Energizer battery business is battling a huge fight to the death with Duracell (one of Gillette Company's brands) and Rayovac. Now seeking to free itself of the problems of the battery market, Ralston Purina has announced this important and enormous spin. See Balu, "Ralston to Spin Off Energizer Division," Wall Street Journal, June 11, 1999, p. A3.

Despite this announcement, Ralston Purina announced that it has not yet decided on the structure of the spinoff, including how many shares would be issued to Ralston shareholders, how much debt the new company would carry, or even the name of the new company. However, the numbers are huge. Ralston's pet operations had $2.6 billion in sales as of September 30, 1998, and its Energizer brand had $2.1 billion in sales as of the same date. Just how the big debt will be divided among the companies remains uncertain, though, and it is far more than an Energizer bunny-sized question: Ralston Purina has nearly $2.3 billion in debt.

Yes, billions. Certain management changes are in the offing as well, with Ralston Purina's dual management structure slated to change. Already, one of the co-chief executives of the group announced his resignation to concentrate on preparing Eveready for the split. See Edgecliffe-Johnson and Marsh, "Ralston Plans to Spin Off Eveready Arm," Financial Times (London), June 11, 1999, p. 18.

Tobacco, Then Health

Elsewhere, R.J. Reynolds Tobacco Holdings, Inc. has finished its spinoff from its former parent, RJR Nabisco Holdings Corp. In the wake of this spin, the newly independent company has named eight new board members (see "R.J. Reynolds, Fresh from Spinoff, Names Eight Board Members," Wall Street Journal, June 16, 1999, p. B5).

In the health services industries, several spinoffs have either been announced or completed. HealthSouth has announced plans to spinoff its inpatient hospitals into a separate publicly traded company by the end of 1999. HealthSouth Corp. is a large provider of rehabilitation services, and the new entity will be called HealthSouth Hospital Corp. The spin is intended to be a pro rata spin, with HealthSouth Corp. shareholders receiving one share of the new company in proportion to their ownership in the existing entity. See "HealthSouth Spinoff of Inpatient Hospitals is Approved by Board," Wall Street Journal, June 15, 1999, p. B15.

In another healthcare business, Snyder Communications, Inc. has announced plans to spinoff its healthcare marketing business into a new publicly traded company. The new company will be known as Snyder Healthcare Services, Inc. See "Snyder to Spin Off Health-Care Marketing Business," Wall Street Journal, June 24, 1999, p. B14. Like the HealthSouth spinoff, the Snyder Communications spinoff will be pro rata to existing Snyder Communications shareholders.

Last Word

In the category of "not soup yet," Crane Co. is said to be considering a spin of its Huttig Building Products distribution unit to shareholders. The goal of the spin is to enable the company's core manufacturing lines to be more focused. The planned spin may be completed as early as the end of October, according to a report. See "Crane Weighs Spinoff of Huttig to Refocus on Core Operations," Wall Street Journal, June 22, 1999, p. C24. The plan is contingent, of course, on several factors, including favorable market conditions and on the tax-free character of the spinoff being confirmed.

Finally, Baxter International, Inc. has announced a spinoff of its cardiovascular business, an entity that makes the largest selling tissue heart valves and generates sales expected to approach $1 billion this year. The cardiovascular business as a separate business is meant to make the company a more aggressive industry player, according to Baxter. See Burton, "Baxter Plans to Spin Off Cardiac Unit," Wall Street Journal, July 12, 1999, p. A3. Interestingly, Baxter is apparently consciously modeling its spinoff on Guidant Corp., which split off from Eli Lilly & Co. The new Baxter entity is to be spun off to Baxter shareholders during the first half of the year 2000, assuming, of course, that the transaction is tax-free.

Current Spins in the News, Vol. 8, No. 1, The M&A Tax Report (August 1999), p. 5.