ONE MORE WORD ABOUT TRACKING STOCK

In December, we looked at tracking stock, some of its history and uses. See Wood, “Tracking Tracking Stock,” Vol. 9, No. 3, M&A Tax Report (Dec. 2000), p. 7. Before embarking on a review of the current tax rules, and more ominously, the proposed tax treatment of tracking stock, a couple of additional observations are in order. Tracking stock has largely been a U.S. phenomenon. Still, there are signs this is changing.

Despite turbulence in the technology sector, which certainly contributed to a slowdown in tracking stock filings this year, at least one foreign concern — and a big one at that — is said to be considering tracking. There is at least a little precedent for this, as pioneer tracking issues were closed in the 1950s and 1960s in Belgium and Holland, respectively. See Natusch, “Non-Tax Motivations for Tracking Stock?” Vol. 8, No. 6, M&A Tax Report (Jan. 2000), p. 1.

Japan, Inc.

Sony Corp. announced in late November that it will begin preparing to spin off its internet service provider unit into a tracking stock. If it follows through with this plan, Sony would become the first Japanese firm to issue tracking stock. The issuance is conditioned upon the plan receiving the necessary extraordinary shareholder approval at Sony’s shareholder meeting scheduled for January 25, 2001. At that meeting, Sony will consider (and hopefully approve) the necessary changes in the company’s charter to enable it to issue tracking stock.

Introducing stock to track the performance of a particular division or subsidiary, Sony intends to boost the value of Sony Communication Network Corp. (“SCN”), a wholly-owned subsidiary of Sony (“SNE”), as well as overall group value. For details about Sony, see Ando, “Sony to Issue Tracking Stock for Unit,” CBS.MarketWatch.com, Nov. 20, 2000.

India?

Moreover, tracking stock may be in the offing in India, where the concept is getting local press. See Thiagarajan, “Time for Tracking Stock?” The Hindu Business Line (Internet Edition), November 15, 2000. SEBI, the Indian securities regulators, has been urged to consider allowing tracking stock flotations.

Meanwhile, while tracking stocks have certainly slowed in the U.S. This year there were only two notable issuances. Apparently, only AT&T Corp. and Apollo Group, Inc. have issued tracking stocks during this troubling year. Thus, the future remains unclear. Next month we’ll look at the tax treatment of tracking stocks.

One More Word About Tracking Stock, Vol. 9, No. 7, M&A Tax Report (February 2001), p. 6.