Wachtell Lipton recently issued the 2021 edition of its “Spin-Off Guide.” This 79-page publication is a terrific resource for getting up to speed on the wide variety of issues associated with spin-off transactions. This excerpt from the intro gives you a sense for breadth & complexity of the issues involved in a transaction like this:
The process of completing a spin-off is complex. The issues that arise in an individual situation depend largely on the business goals of the separation transaction, the degree to which the businesses were integrated before the transaction, the extent of the continuing relationships between the businesses after the transaction, the structure of the transaction and the desire to obtain (if possible) tax-free treatment of the spin-off.
If the businesses were tightly integrated before the transaction or are expected to have significant business relationships following the transaction, it will take more time and effort to allocate assets and liabilities, identify personnel that will be transferred, separate employee benefits plans, obtain consents relating to contracts and other rights, and document ongoing arrangements for shared services (e.g., legal, finance, human resources and information technology) and continuing supply, intellectual property sharing and other commercial or operating agreements.
If the parent is expected to own a substantial portion of the spin-off company after the closing, careful planning is also required with respect to the composition of the new company’s board, independent director approval of related-party transactions, handling of corporate opportunities and other matters. In addition to these separation-related issues, spin-offs raise various issues associated with taking a company public, such as drafting and filing the initial disclosure documents, applying for listing on a stock exchange, implementing internal controls and managing ongoing reporting obligations and public investor relations. These issues become more complex in a spin-off combined with an initial public offering or other capital markets transaction, or in a spin-off that is part of a larger merger or business combination.
I can attest to that last statement from experience. I was involved in representing the buyer in a Reverse Morris Trust transaction a little more than a decade ago, and my little flyover state lawyer brain was so fried that I still have a headache.
– John Jenkins