Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Technology Stocks : How high will Microsoft fly? -- Ignore unavailable to you. Want to Upgrade?

To: Dan Spangenberg who wrote (26442)	7/17/1999 7:49:00 AM
From: Harry Sharp	Read Replies (1) \| Respond to of 74651

Dan, for an explanation of a tracking stock, read this first and, if you have questions please pose them. Message 10538759

To: Dan Spangenberg who wrote (26442)	7/18/1999 2:33:00 AM
From: Mick Mørmøny	Read Replies (1) \| Respond to of 74651

More general information about tracking stocks that would be of interest to you and the thread. Shares That Track Assets Add Value at a Cost Most companies are not shy about doing most anything they can to increase their stock prices. A growing number have concluded that the best way to accomplish that goal is to create an entirely new piece of paper. Tracking stocks, which first appeared in the early 1980s, have become hot. Last week, the Walt Disney Co. said it would combine its own Internet holdings with the Infoseek Corp. and create a new company that it will control, Go.com. Later this year, the DuPont Corp. will create a tracking stock for its life sciences business. And shares of the Microsoft Corp. jumped 5 percent on Friday after reports that it has been considering a tracking stock for its Internet businesses. All told, there are dozens of tracking stocks trading. Last week, Robert Willens, a managing director and analyst at Lehman Brothers who has served as an adviser to companies with tracking stocks, discussed the pros, cons and potential pitfalls for investors in tracking stocks. Here are excerpts: Q. Tracking stocks have been in the news a lot recently, but they have been around for some time. Could you give us a history? A. Technically, tracking stocks have been around for about 15 years. They were first used with General Motors' acquisition of EDS, and then again when they bought Hughes Aircraft. Both those were pretty much the only times they were used in the 1980s. What I call the modern era began with USX, when they issued a stock to track the performance of their oil business, Marathon Oil. In that instance, the tracking stock was a compromise. Carl Icahn, who at the time was a big USX shareholder, was exerting a lot of pressure to separate Marathon from the parent. In order to protect its debt rating, among other things, USX wanted to keep the two companies together. So we came up with the tracking stock. Q. How do you explain the surge in interest in tracking stocks? It looks like a number of companies, including Disney, are merely trying to highlight their Internet holdings. A. The Internet probably has a lot to do with it. But a lot of attention was focused on tracking stocks last February, when the Clinton administration proposed in its version of the federal budget to end the use of tracking stocks, and said any company issuing a tracking stock would be treated as if it had sold the tracked assets. That would subject the company to capital gains taxes. Faced with such an onerous tax, it is unlikely anyone would issue tracking stock should that proposal become law. But the negative proposal had the odd effect of getting people's attention. All of a sudden, tracking stock became one of the tools that corporations focused on. And when they did look at it, they found it was such a powerful tool that it made sense for almost any big company. Q. Was this year's sudden rush of tracking stocks an effort to beat the legislation and get grandfather status? A. The way the administration's proposal was written, a company would have been grandfathered for the first issuance of tracking stock, but not for subsequent uses. That would have defeated the purpose, because companies will want to use the tracking stock to make acquisitions, to pay dividends and the like. Q. Is the impetus to issue a tracking stock decreased if the stock of the parent company is doing well? A. Yes, it is. Unlocking value is the impetus here, by forcing the market to pay attention to a business within a much larger enterprise. By separating the business and giving it a separate currency, or stock, you allow them the opportunity to make acquisitions in that area and to compensate management. Q. Based on experience, does the issuance of a tracking stock help to increase the stock price of the parent company? A. Usually there is very little effect on the parent company stock after the tracking stock is created. Q. What are some potential pitfalls and common misperceptions about tracking stocks that investors should bear in mind? A. One theoretical risk is that since these businesses are not separated in any legal sense, creditors would have claim on those assets if the parent ever got in trouble. And that leads to a common misperception. In some quarters, there is still some confusion about who owns the company. A tracking stock is not a company that has been spun off. A shareholder has no direct claim on the tracked assets. And you have no voting rights, except at the parent company level. Q. Have tracking stocks performed well? A. For the most part, they have been good investments. In general, they tend to trade pretty much in line with their independent peers, which is exactly what people hope will happen. nytimes.com