Some partners turn to the quick sale to raise capital and dress up performance.
Analysts cite several reasons why energy companies might wish to execute a spin-off:
* To cover a failed merger,
* To raise cheap capital, or
* To boost valuation of a diversified company.
In fact, many newly merged energy companies will fit into this last category. No longer just power companies, they now own merchant generation, transmission, pipelines and telecommunications assets.
Also, the energy industry lately has pursued equity carve-outs, a type of spin-off to help the parent raise capital, clarify focus and highlight the subsidiary's independence.
A carve-out lets analysts follow a previously obscured business more accurately, says Jeffrey R. Holzschuh, managing director at investment bank Morgan Stanley Dean Witter. The higher valuations of the carve-out typically are reflected in the parent company's stock, he adds.
Enron's Azurix Spin-Off
Enron recently carved out its water assets in Azurix, says Joe Cornell, president at SPIN-OFF Advisors L.L.C., but retained a 69 percent stake.
"They did a partial spin-off for no other reason than it is cheap access to capital. [Furthermore], they might not do the full spin," he says.
Azurix was formed by Enron to acquire, manage and develop water and wastewater businesses around the world. With deregulation sweeping through the water industry, Azurix plans to acquire water companies formerly owned by the government.
In its first major purchase, Azurix bought Wessex Water in the UK for $2.4 billion, according to Spin-Off Research, an investment advisory firm. Later it acquired water businesses in Argentina, Brazil, Canada and Mexico.
Duke's Gas Gathering Spin-Off