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.

Biotech / Medical : Biotech Derivatives -- Ignore unavailable to you. Want to Upgrade?

To: RWReeves who wrote (397)	9/15/1999 7:47:00 PM
From: sim1	Read Replies (1) \| Respond to of 555

Thought this might be of interest from Briefing.Com. briefing.com Tracking Stocks Defined Tracking stocks have become a popular way for a company to "spin-off" a separate division. However, issuing tracking stock is not the same as creating a completely independent company with separately traded stock. Tracking stocks are usually issued by a parent company to create a financial vehicle to track the performance of a particular division or subsidiary. When a parent company issues tracking stock, all revenues and expenses of the division are separated from the parent company's financial statements and attributed to the tracking stock. Often this is done to separate a high growth division with large losses from the financial statements of the parent company. Unlike common stock, tracking stock is usually not sold into the market, with proceeds going to the division. Generally, tracking stock comes into existence as the result of an acquisition, or a "spin-off." The parent company always has the right to reabsorb the tracking stock into the common stock of the parent, generally in an exchange at a "fair" ratio for the parent common stock. Once a division has been "spun-off" into a tracking stock, the financials of that division are completely separated from that of the parent, allowing the market to determine the value of the division. Without tracking stock, analysts must make a determination of the value of the division, often without benefit of separate line item financials for the division. Divisions with tracking stock are different from Subsidiaries in their corporate structure. The division does not have a separate board of directors, nor does it have the capability of holding its own shareholder proxies. In addition, the parent company is still legally responsible for the debts and liabilities of the division. A tracking stock division cannot declare bankruptcy separately from its parent company. Owners of tracking stocks purchase the stock with the sole anticipation of growth. Future acquisition or reabsorption into the parent company is usually the sole anticipation of reward for tracking stocks. Because of the type of division that is spun off into tracking stocks, they usually do not pay dividends. In the current market environment of the past five years, high growth companies have been the most valued. When a large profitable company owns a division with high growth potential, the appeal of a tracking stock is that the losses associated with the division can be separated from the earnings history of the parent company. This allows the market to clearly separate the high growth, low profitable business from the slower growth, profitable business. By spinning off the tracking stock into a separate trading entity, a new market is created for the stock by investors seeking high growth opportunities. The most recent example of a company issuing tracking stock is Quantum (QNTM). Quantum's proposal is itself unusual in that they intend to create two separate tracking stocks, but no separate common stock. Quantum plans two sets of stock, one for its storage systems business, and one for its hard disk drive business. The storage systems business should be more highly valued in the market than the hard drive business. For practical trading purposes, tracking stocks function exactly like common stock. Your tracking stock may be reabsorbed into the parent, at a value you may or may not be happy with. However, acquisition of this kind would be subject to shareholder vote, and is therefore really no different than a merger or acquisition of common stock.

To: RWReeves who wrote (397)	9/15/1999 8:13:00 PM
From: LLCF	Read Replies (1) \| Respond to of 555

< You, as a minority shareholder can't actually get your hands on the cashflows. > Actually we're all minority shareholders in everything we own... there is always risk that someone buys up like 75% of any company and lets us sit and rot with the rest. As usual I think management is very important not to let this happen... or in GZMO's case not to "stick it to us". That said, legally, we are absolutely entitled to NPV of expected cash flows. <But the expectation that the share you hold could be sold to an acquirer and the acquirer could realize the actual cash flows would seem to be the underlying value- that's the essential function of an arbitrage market in equities.> What you're saying here is that ONE way [takeover] of realizing value has been removed... there are of course others in an arbitrage market in equities... <This just isn't there with a tracking stock.> If THIS is the takeover, I agree... if your saying that the market place doesn't work with tracking stocks I disagree. <But if GZMO was selling for a nickel tomorrow who could buy it and realize the underlying value? > Me! :) Legally 'general' would owe my my portion of all products developed by the company... no way would 'general' screw with a minority shareholder IMO. But, that's just my take on this management. DAK