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Technology Stocks : SDL, Inc. [Nasdaq: SDLI] -- Ignore unavailable to you. Want to Upgrade?

To: bafi403 who wrote (2807)	9/16/2000 7:38:05 PM
From: pat mudge	Read Replies (2) \| Respond to of 3951

Thanks for the great comments on NT's spinoff to all who responded. Within the backdrop of modern-day contracting and a tight labour market, spinoffs also allow a firm to be more efficient in designing compensation contracts for management, (stock options that reflect the prospects of the relevant division, etc.) This is probably the most compelling argument I've heard and one I hadn't considered. It has to be extremely difficult to keep engineers/scientists if your stock is valued at 1/4 to 1/10 the competition. [P/S: NT 7.66; JDSU 52.42; GLW 14.10, SDLI 85.02.] Therefore, "complete" spinoffs make a lot of sense to shareholders, (by "complete" I mean the division is first valued by the market and new shareholders in a partial IPO, and then all the remaining shares are distributed to old shareholders: that is, the division is then freely and publicly traded as a new firm).However, the difficult psychological hurdle for current management to cross is the fact that it has to give up control of the division. There are two ways of keeping control: (1) Do a spinoff and keep majority ownership, (that is, do not distribute the shares to the shareholders) or (2) Issue tracking stock instead of doing the spinoff. Roth appears to be talking about using the first technique. A spinoff with shares distributed to shareholders would be the cleanest solution and is the ATT/LU model, I believe. I'm not sure tracking stocks succeed, but it seems to me that a partial spinoff like Roth is proposing would be in effect a tracking stock, and as such would not make your competitors any more comfortable buying from you than it would from your parent, in this case NT. Every time I discussed this issue with Don Scifres he said they would not allow themselves to be sold to a major vendor and upset their other customers. If NT spins off its components division they conceivably could be a bidder for SDL [in the event the current bid failed] but I doubt it would happen if NT maintained control. The same could be said for Lucent's or Alcatel's spinoffs. Needless to say, one needs to be skeptical of incomplete spinoffs. The only circumstance, that I can think of, under which incomplete spinoffs might make sense is if the market believes that the absence of Roth's management-presence would cause the division to fall apart. In this market I find that a hard scenario to imagine. BTW, someone asked if NT's components were actives or passives and I'm going to guess passive primarily b/c they're a big buyer of SDL's actives. Actives are the most difficult to develop and the best have come out of the defense industry, including the best packaging. "Military specs" are famous for their detail and complexity and companies that didn't have to build to those standards are lagging those who did. I don't know NT's history in this regard but I do know some of the finest off-shore companies have succeeded in developing diodes but not in getting them packaged to Telcordia standards. [There's a reason SDL claims such a high valuation.] At any rate, I have enormous respect for John Roth and wish him well as he steers his company into the Light Age. Pat