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Dutch corporate finance - Dividing while still maintainingfull control

New forms of corporate restructuring are appearing in Dutch business. Leading pensions funds are agitating for shareholder value and companies are responding by listing subsidiaries. But some Dutch companies want to retain control of non-core divisions and exposure to their growth prospects, while at the same time benefiting from favourable stock market ratings for these businesses. So they are listing minority stakes in large divisions through so-called equity carve-outs, rather than pursuing full-blown spin-offs: a poor compromise or smart corporate finance? Steven Wilson and Leo van de Voort report.

    Some three year ago, the ground-breaking deal in Holland was the splitting up of conglomerate Vendex through spin-offs of two major divisions. It spun off its recruitment division, Vendior, and two years ago also spun off its retail interests in a new company called Laurus. Vendex itself was left as a focused department-store business. In the course of privatization IPOs, the old Dutch state PTT was also restructured into separate post and telecoms companies. KPN was effectively a spin-off of the former state monopoly.

Now, it is the turn of the spin-offs to restructure themselves. This may increasingly be done by partly splitting-off divisions through equity carve-outs, which allow parent companies to retain a significant equity interest. Last November, KPN and Qwest Communications International chose to float their fibre-optic cable joint venture company, KPN Qwest, by way of a public sale of 20% of the equity. Buoyed by investor enthusiasm for all things related to cable and the internet, KPN Qwest's share price quickly rose from a listing price of e20 to e43. The joint-venture partners will receive value from this performance through their retained stakes.

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