It’s Thursday before Memorial Day Weekend which means it’s a perfect time for some Spinoff Odds & Ends:
- Thanks to Paul Singer’s Elliott Advisors there is a lot of drama swirling around BHP Billiton (BHP) (we will get to that shortly hopefully), but Bloomberg’s Gadfly checks in South32 (SOUHY), the mining giant’s 2015 spinoff. That mishmash of unloved mining assets has actually performed quite well since the spinoff and the company’s strong balance sheet has it in a nice position. Of course, there are always problems on the horizon in these cyclical businesses and author David Fickling notes that the useful lives of the company’s most profitable assets are running out. The fix? A merger of course, specifically with Teck Resources (TECK). Read the piece and judge the merits on your own, but that is certainly one use of a strong balance sheet. It would certainly be an interesting time for M&A in the space. The author does note that another option for the company could be to reinvest in its current asset base and try to extend the life of its assets. Of course, higher metal prices could also make its other assets a whole lot profitable and lessen any future pressure as well. Additionally, there is the teency weency problem of the Keevil family controlling the majority of Teck’s voting shares who would have to give up control of the company they founded. Crazier things have happened though…
- Jones Day notes that the IRS will begin issuing some private letter rulings relating to spinoffs again. Over the past several years, the agency had opted to utilize its limited resources elsewhere and had stopped issuing private letter rulings blessing individual transactions. Although a good tax attorney could probably alleviate many of these concerns (a good tax attorney is a real asset), this may have caused some firms to hold back given the uncertain tax treatment. After all, taxes are a key component of a spinoff transaction. More specifically, Jones Day notes that the agency will now rule on the following situations:
The IRS will again rule on distributions of certain subsidiary debt securities (or stock) in exchange for parent debt issued in anticipation of a spin-off, allowing companies considering a spin-off to seek IRS confirmation of tax-free treatment.
The IRS will resume ruling on whether north-south transactions are respected as separate transactions and has confirmed that certain north-south transactions will not adversely impact second-step spin-offs.
Interesting change of heart by the agency. Perhaps it’s a more manageable task with these limited types of questions? If you have some insight on this subject please drop a note in the comments.
Disclosure: Author holds no position in any stock mentioned.
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