Fortune Brands Joins Corporate Spin-Off Movement

Fortune Brands

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Fortune Brands is spinning off its Home & Security business to existing shareholders (NYSE: FBHS WI) and changing its parent company name to Beam Inc. (NYSE: BEAM). Shareholders who owned Fortune Brands as of the September 20th record date and continue to hold through the distribution date will receive one new share of FBHS. Existing Fortune Brands' parent company shares will automatically convert into shares of BEAM. FBHS will be a separate, standalone company after shares are distributed on October 3rd.

When explaining the rationale for the spin, Bruce Carbonari, Chairman & Chief Executive Officer of Fortune Brands said: "The separation of Fortune Brands' businesses will give shareholders a compelling opportunity to participate in the significant upside potential we see in both Beam and Fortune Brands Home & Security".

Unlike securities that have gone through the process of an IPO, a spin-off transaction is unique because the “When Issued” market provides the sole pricing mechanism supplying an early feel of how this new company will trade after the spin transaction has occurred. In addition to the “When Issued” market in FBHS, the NYSE has also made available an “Ex-Distribution” market for Fortune Brands, "ex" the spin or value of FBHS. This market provides trading in a “When Issued” environment for BEAM and will also reflect any other changes that occur with the remaining parent company. Existing parent Fortune Brands will continue to trade through October 3rd when the spin-off transaction is completed.

Although spin-off transactions like this don’t occur that often, there has been a recent spike in activity this year. So far, five spin-off transactions have been completed already, including Motorola Inc. (now named Motorola Solutions NYSE: MSI) which spun off Motorola Mobility (NYSE: MMI), Marathon Oil (NYSE: MRO)/Marathon Petroleum (NYSE: MPC) and Northrop Grumman (NYSE: NOC)/Huntington Ingalls Industries (NYSE: HII). Additionally, a number of other deals have been announced and are expected to occur before year end or during 2012.  A few high profile names include: Marriott's (NYSE: MAR) spin-off of Marriott Vacations Worldwide Corp., Kraft Foods' (NYSE: KFT) split into global snack foods and a North American grocery specialist business, Sara Lee's (NYSE: SLE) spin-off its international Coffee and Tea business from its North American business. Also, Hewlett-Packard (NYSE: HPQ) has announced its intent to spin-off its PC business and McGraw-Hill (NYSE: MHP) and American Airlines (NYSE: AMR) are exploring possible spins.

As companies seek to unlock value for shareholders in this tough market, spin-offs seem to be gaining favor.

 

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