A Tale of Two Spin-Offs: Successes and Messes October 25, 2013

Transcription

1 A Tale of Two Spin-Offs: Successes and Messes October 25, 2013 Yoon Park Director of Global Compensation and Equity, TripAdvisor, Inc. Kate Fournillier Manager, Equity & Retirement Administration, Covidien Chris Dohrmann Executive Director, Business Development, Accurate Equity AmyLynn Flood Partner, PwC Geoff Hammel Managing Director, ISP Advisors LLC

2 Agenda Introductions Overview of Recent Activity Trip Advisor s Story Covidien s Story Financial Reporting Practical Guidance

3 Recent Spin Off s Parent Name Spin Off Name Spin Off Date Murphy Oil Corporation IDT Corporation Murphy Oil USA August 30, 2013 Straight Path Communications July 31, 2013 Siemens AG Osram July 8, st Century Fox News Corporation June 28, 2013 Covidien Mallinckrodt June 28, 2013 Dean Foods Company WhiteWave Foods Company IPO Completed Oct 26, 2012; Spin May 23, 2013 * Data from

4 Equity Compensation and Spin Off s Companies will use different methods for treating unvested equity. For example, o Conversion of unvested parent equity grants into equivalent SpinCo grants o Modification of existing parent equity grants; retained by Parent employees o Parent and SpinCo equity holders have adjustments made using both Parent and SpinCo equity BMS vested outstanding RSUs pro rata, and paid to employees Cendant let unvested equity expire but converted the lost value into equity over its SpinCo company, PHH Corporation Tyco International converted corporate employees equity into equity in each of the three new companies (Tyco, TE Connectivity and Covidien)

5 Trip Advisor s Story TripAdvisor: At a Glance A Fresh Start Sort Of

6 TripAdvisor: At a Glance Stock Ticker: Market Cap: Nasdaq: TRIP $8.64 billion 2012 Revenue: $762 million Index Membership: S&P 500 Founded: 2000 Headquarters: Newton, MA TripAdvisor is the world's largest travel site, enabling travelers to plan and have the perfect trip. TripAdvisor offers trusted advice from real travelers and a wide variety of travel choices and planning features with seamless links to booking tools. TripAdvisor branded sites make up the largest travel community in the world, with more than 200 million unique monthly visitors, and over 100 million reviews and opinions covering more than 2.5 million accommodations, restaurants, and attractions. The sites operate in 30 countries worldwide, including China under daodao.com. TripAdvisor also includes TripAdvisor for Business, a dedicated division that provides the tourism industry access to millions of monthly TripAdvisor visitors. Employees: Global Presence: ~1,700 worldwide ~15 countries Acquired: IAC (2004) Spin #1: Together w/ all other travel businesses under EXPE (2005) Spin #2 / IPO: December 2011

7 A Fresh Start Sort of The Spin On December 20, 2011 TripAdvisor was spun off from Expedia Spin mechanics Immediately prior to the spin off, Expedia effected a 1 for 2 reverse split As a result of the reverse split and spin off, every 2 shares of Expedia were converted into: One share of EXPE One share of TRIP

8 A Fresh Start Sort of The Spin What happen to equity awards? Conversion ratios were applied to preserve intrinsic value But trailing obligations to non employees were created by both EXPE & TRIP Employee Award Type Result EXPE Option (vested) EXPE option & TRIP option EXPE Option (unvested) EXPE option EXPE RSU (unvested) EXPE RSU TRIP Option (vested) TRIP option & EXPE option TRIP Option (unvested) TRIP option TRIP RSU (unvested) TRIP RSU

9 A Fresh Start Sort of The Spin IAC s history of divestitures with similar spin mechanics only further complicated the situation Options settling in TRIP were also held by employees of: HSNI IAC EXPE Options held by TRIP employees settled in stock of the following companies: HSNI IAC TREE TKTM IILG EXPE THE RESULT A long, material trail of non employee / former SpinCo obligations A significant % of TRIP options were held by non employees

10 A Fresh Start Sort of A New Vendor Administration of non employee awards Initially, all SpinCos resided on the same vendor platform This permitted sharing of employee indicative data across databases Intra SpinCo reporting was still required to handle ongoing payroll and accounting obligations In Q1 2013, TRIP selected a new stock plan vendor

11 A Fresh Start Sort of A New Vendor TRIP s move to the new vendor offered an opportunity to revisit the challenges and risks presented by administering non employee equity awards TRIP proposed that each employer would be responsible for administering the awards of only its own employees Each employer would administer awards that settle in multiple CUSIPs through their existing recordkeeper

12 A Fresh Start Sort of A New Vendor The proposal (in detail) Objectives Simplify participant experience + - Control all indicative data for employee awards on the same, new vendor platform (tax rates, terms, etc.) TRIP Establish old vendor controls to settle TRIP awards (DWAC) + - Control all indicative data for employee awards on the same, old vendor platform (tax rates, terms, etc.) SpinCos Establish new vendor controls to settle SpinCo awards (DWAC) Enhance independence / controls Minimize operational risk Reduce administrative burden Receive all payroll reporting from one platform (new vendor) No need to keep indicative old vendor data feed Single site / login for TRIP participants Establish old vendor reporting to reconcile TRIP awards exercised by SpinCo employees Single site / login for SpinCo participants. No communication needed No need create indicative data feed to new vendor Receive all payroll reporting from one platform (old vendor) Establish new vendor reporting to reconcile SpinCo awards exercised by TripAdvisor employees.

13 A Fresh Start Sort of A New Vendor Trip Data Before and After July 1 New Vendor - LIVE TRIP only employees: TRIP Stock Outstanding and Not Outstanding SpinCo Stock: Outstanding and Not Outstanding Pre Conversion All TRIP and SpinCo Employees Reside at old vendor July 1 Old Vendor - LIVE Spin-Co only employees: TRIP Stock Outstanding and Not Outstanding Going forward Data from two vendors captures all TRIP Stock related transactions July 1 Old Vendor - FROZEN All TRIP and SpinCo Employees Activity through June 28. This data will remain available for employees and corporate to view activity through June 28 Going forward This database stays static

14 Covidien: At a Glance Stock Ticker: Headquarters: NYSE: COV Mansfield, MA 2012 Revenue: $9.9 billion Employees: Global Presence: Spin #1: Spin #2: ~38,000 worldwide ~70 countries Separated from Tyco International in 2007 Spun Pharmaceuticals Business in June 2013 Covidien is a large global healthcare products Company committed to sustaining strong profit Margins and cash flows, while making growth driving Investments for the future. Named by Forbes Magazine as one of the World s Most Innovative Companies

15 Separation from Tyco International On June 29, 2007, Covidien separated from Tyco International Spin mechanics Restricted stock units granted in year of separation converted entirely into RSUs of an employee s post separation company RSUs granted prior to year of separation converted into RSUs of all three new companies; with accelerated vesting for the RSUs held in the companies that were not an employee s post separation parent company Stock options converted entirely to stock options in an employee s post separation company Corporate employees had their equity awards converted into equity of all three new companies (Tyco, Covidien and Tyco Electronics, now TE Connectivity)

16 The Next Spin... Employee Groups Only two employee groups will be used for equity conversion Employees remaining with Covidien will have all unvested equity converted to Covidien shares Pharma employees will have all unvested equity converted to Pharma shares Retired employees will have outstanding equity converted based upon their prior work location (Covidien or Pharma) Non-Covidien option holders (i.e. former Tyco employees) will have all options converted to Covidien Stock Prices for Equity Conversion In order to properly convert outstanding Covidien equity to equivalent value post spin, prices are needed for both Covidien and Pharma The closing Covidien price on the day prior to spin, and the opening day Volume Weighted Average Price (VWAP) for both Covidien and Pharma will be used for equity conversions Stock Option and RSU / PSU Conversion The number of stock options and their respective strike prices will be adjusted at spin to maintain their intrinsic value The number of restricted stock units / performance share units will be converted using a ratio based on the pre-spin closing price and the post spin VWAP price All terms and conditions will remain unchanged

17 Treatment of Spin to PSU Plans for Covidien Employees Assumed Spin Fiscal Year FY11 Grant Terminate the performance period at spin and calculate payout factor Final 3 months will be service based vesting Performance period terminates at spin Service based vesting FY12 Grant Consistent with approved rules that address corporate transactions, at spin remove certain companies from Index 3 year performance period continues unchanged Pharma peers removed from Index FY13 Grant No Pharma peers are in the index 3 year performance period continues unchanged No pharma peers in Index

18 Treatment of Spin to PSU Plans for Pharma Employees Assumed Spin FY11 Grant Terminate performance period at spin; balance of period is service based vesting Service based vesting FY12 Grant Terminate performance period at spin; balance of period is service based vesting Service based vesting FY11 Grant Identical treatment as Covidien; terminate the performance period at spin, using 33 months of performance to calculate final results Final 3 months will be service based vesting FY12 Grant Terminate the performance period at spin, using 21 months of performance to calculate final results Final 15 months will be service based vesting

19 Financial Reporting Fractional shares Accelerations, Cancellations and Off Cycle Reports Modification Accounting

20 Practical Guidance structured decision making Develop the objectives of the equity treatment Understand the potential Day 1 strategy for SpinCo Develop alternatives that best fit the Parent s objectives consistent with SpinCo s finance/human resource considerations Model the economic impact of each alternative Determine the motivational impact on both Parent and SpinCo s employees Choose the appropriate alternative

21 Contact Information: Yoon Park Director of Global Compensation and Equity, TripAdvisor, Inc. Kate Fourniller Manager, Equity & Retirement Administration, Covidien Chris Dohrmann Executive Director, Business Development, Accurate Equity AmyLynn Flood Partner, PwC Geoff Hammel ISP Advisors LLC Managing Director