1. American Cyanamid’s Cytec’s Spin-Off
Ron Bangco
Frank Abrao
Katie O’Neal
Christina Natale

2. The Chemical Division Spin-off into Cytec Industries
Agenda:
The Chemical Division Spin-off into Cytec Industries

3. History of American Cyanamid
Founded in 1907 as a manufacturer of fertilizer, calcium cyanamide
In the 40’s and 50’s, they strengthened their position in medical products
Lost market share in its consumer products division in the 60’s and 70’s
In the 80’s Cyanamide focused on its core businesses (life sciences)
Sell or spin-off unrelated or poorly performing assets
90’s, Cyanamid initiated asset sales of some of its consumer products
90’s, Prior to spin-off sold some of its chemical business without their liabilities

4. Chemical Division (Cytec)
Chemical businesses generated 25% of sales, posted $171.5 million loss
Chemical division generated 23% of sales with only 5% earnings
Chemicals division’s made a separate, unincorporated business unit called Cytec Industries
Cytec officially spun off Cyanamid
- Cytec (chemical division) held unrelated businesses
- Held liabilities of previously sold businesses

5. Net Income of American Cyanamid's Division

6. Chemical Division (Cytec's) Sales and Net Income (in millions)

7. Advantages to Cyanamid
Focused on core competency
Reduce liabilities
Environmental
Retiree Health Care
Life Insurance
Pension
Dividend’s of $14.6 million per year

8. Divestiture options on chemical division (Cytec Industries)?
Asset Sale
Equity Carve Out
Spin-Off

9. Subsidiary is sold to a third party
Asset Sale
Subsidiary is sold to a third party
No new firm is created
No effect to rivals
Pros
Receives Cash
Creates value to shareholders of parent firm
Cons
Tax Implications – Tax on sale
AI – stock is overvalued

10. Equity Carve Out Parent firm issues equity of a subsidiary
Parent firm receives cash
New firm is created
Subsidiary
Substitute to equity financing
Buyers of new stock become shareholders of the subsidiary firm
Parent Firm usually maintains a controlling interest in the new firm

11. Equity Carve Out Pros Creates value to shareholders of parent firm
Incentives for management
Greater monitoring
AI – signaling parent firm undervalue
Cons
Tax Implications – Tax on sale
AI – subsidiary stock is overvalued
Transaction Cost

12. Spin-Off Equity issuance New firm is created
Parent firm does not receive cash in transaction
New shares distributed to existing shareholders as a pro rata dividend
Shareholders of the new independent firm are the same share holders as the shareholders of the parent firm
Tax free transactions
Distributes minimum 80% of the shares for the subsidiary

13. Spin-Off Pros Creates value to shareholders of parent firm
Greater monitoring
Positive information on subsidiary
Cons
Rivals of Spin-off experience positive return

14. How is Value Added?
Better Management of new independent carved out firm (Equity Carve Out and Spin-Off)
Easier to set up incentive based contracts
Publicly traded equity
Compensated on stock performance
Greater monitoring and information production about the new firm
Analysts, Credit Ratings…

15. Equity Structure
Cytec issued approx million shares of common stock pro rata to Cyanamid shareholders
7 shares of ACY received 1 share of CYT
Cytec issued preferred stock to Cyanamid with aggregate face value of $200 million
Three tranches
Tax implications
Gave up tax advantage to retain more control

16. Three Tranches Series A
Annual cash dividend, 15 year life, transferable and redeemable after 4 years, in full after 6 years
Series B
Annual cash dividend, 15 year life, transferable, convertible to 30% of Cytec stock
*Covenant for Series A and B: missed dividend payment of 6 or more, entitles the right to elect 2 directors
Series C
Annual cash dividend, perpetual life, restricted covenants, non-transferable, entitles election of 1 director

17. Announcement Date at close
Calculating Value
Announcement Date at close
February 23
Closing Price
February 22
$47.00
February 24
$49.25
Change
4.8% increase in value

18. Standing Behind Our Decision
Ron Bangco
Frank Abrao
Katie O’Neal
Christina Natale
Q&A