Page 220 - Accounting Best Practices

c11.qxd 7/31/03 3:15 PM Page 209
209
11–3 Take a Business Unit Public
that all lending information stored on-line could evaporate if the Web site goes
out of business. Also, most lending deals available on these sites are only for
loans or leases of at least $1 million, which blocks out the financing needs of
many smaller companies.
Cost: Installation time:

11–2 PURCHASE DEBT DIRECTLY FROM THE GOVERNMENT
A company that has excess cash is typically constrained by its lending policies to
investments in a limited number of high-grade debt instruments that carry mini-
mal risk and can be easily liquidated. In many cases, the only allowable invest-
ment are Treasury notes, bills, and bonds of the United States government. How-
ever, companies have been forced to pay commissions to brokers and resellers in
order to obtain these types of investments.
But there is no transaction fee for purchasing government debt directly from
the United States Treasury through its www.publicdebt.treas.gov Web site. One
can use the site to create a TreasuryDirect account for making electronic pur-
chases of debt. Though the intent of the site is to sell debt that is held to maturity,
one can request a debt sale through the Federal Reserve Bank of Chicago via the
Treasury’s Sell Direct system; the government will then sell one’s debt invest-
ments on the open market in exchange for a $34 fee per security sold. The usual
investment will be in Treasury bills, since they have the shortest term to maturity
and can therefore liquidate prior to any need for a commissionable sale to a bro-
ker or reseller. More information about this service is available by downloading
the TreasuryDirect Investor Kit from the aforementioned Web site.

Cost: Installation time:

11–3 TAKE A BUSINESS UNIT PUBLIC
A company with multiple business units can have numerous problems related to
them: Investors are unclear about the operating results of each unit, there may be
significant differences in the perceived market value of some units, other units do
not fall into the core business area, and unit managers have no incentive to
improve their stock performance when their units have only a minor impact on
overall corporate results. All of these issues can be addressed to some degree by
taking a business unit public.
One approach for going public is the equity carve-out. Under this approach,
a company creates a separate legal entity for a subsidiary, with a separate board
of directors, and sells shares in it to the public through an initial public offering.
This approach is usually taken when the unit has a high perceived value by the