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Technology Stocks : Global Crossing - GX (formerly GBLX) -- Ignore unavailable to you. Want to Upgrade?

To: TechMkt who wrote (4635)	3/3/2000 4:39:00 PM
From: John Biddle	Read Replies (4) \| Respond to of 15615

Can one of the financial experts here (and I know there are many) give an explanation of the difference between: 1) Tracking stock 2) Initial Public Offering (IPO) 3) Spin-off While I make no claim to being a financial expert, since no one else jumped in I'll give it a shot. If I'm corrected I'll learn something too. Tracking Stock: Shares issued by a company with the intent of having them represent a specific portion of the business. The original stock then represents the value of the remaining portion. Examples: Quantum QNTM (disk drive company) recently issued a tracking stock in its DLT tape storage division (DSS) and the remainder of the company now goes by the symbol HDD. AT&T has said it will issue a tracking stock for its wireless division. IPO: Initial Public Offering. This is when a non-public company "goes public" by selling shares to the public. Public in this case is a little misleading since often only a minority of the public has any chance at all of getting any of the shares at the offering price. Once the Investment banks sell the shares to their clients, those shares may be freely traded in the open "Public" market. Many previous holders of stock in companies doing an IPO have shares with significant restrictions on sale, the intent being to keep from disrupting the new market in the shares. Spin-off: Similar to an IPO, in that shares of a company are sold to the public for the first time. The big difference is that in IPOs, the company had previously been operating privately as an existing entity for some period of time. In a Spin-off the company did not previously exist as a separate entity, it had been a portion of another company. Parent companies frequently hold a large portion of the ownership of the spun off company, i.e., they only sell a small portion of the shares. Think of Spin-off as a special case of IPO. Both result in new public companies. Examples: Lucent was a Spin-off from AT&T, Leap Wireless was a Spin-off from Qualcomm. Both IPOs and Spin-offs are legal entities that have boards of directors, issue financial reports, pay dividends, etc. Tracking Stocks do not, the parent company does that for all entities. Each of the three techniques is a way to unleash what is believed to be unrealized or hidden value. In an IPO, the owners shares can't easily be sold to another because of various laws and probably contractual obligations as well. In both Tracking Stocks and Spin offs, the company believes that the market will value the two parts at more than it has been valuing the whole company. Tracking Stocks are essentially virtual companies from a a stock valuation perspective, but legally they are just parts of the overall corporation and must be treated as such. For example: In a Tracking Stock, corporate assets are not separated when the tracking stock is issued, so an investor's return is subject to the economic and market risks of the entire corporation. Stockholders of the tracking stock retain voting rights in the entire company, not in the tracked virtual entity. Dividend rights are determined by the parent's board of directors, as well as by state law limits on the parent's ability to pay, without regard to a tracked subsidiary's ability to pay. Tracking Stock investors have no special right to the liquidation of what have been categorized as tracking stock assets; instead, they are entitled to share in all of the issuer's assets on a pro rata basis. Some portion of the issuer's earnings or assets on liquidation are "shared," resulting in a "co-mingling" of economic interests. There are many ways to add complexity to each of these, so every deal needs to be examined individually.