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Corporate Spin-Off Essay

In a broad sense, a Corporate Spin-Off process is the division of an existing company into two, usually a bigger one – the   parent company and a smaller one which is the Spin-Off. There is a process to be considered in a corporate spin-off which consists of three phases. These are the decision phase, the separation phase and the post-separation phase. The decision phase includes all factors leading to the decision to spin-off. The separation phase comprises the strategic and organizational separation of the two companies.

The post-separation phase starts with the independent operation of parent and Spin-Off and ends when no more preferential agreements or relations between parent and Spin-Off exist.The intangibles, persons, and assets transferred from the parent company constitute a key-element of the Spin-Off’s core-business. Corporate Spin-Off processes imply profound changes in liability, responsibility and ownership for the Spin-Off’s activities. The aims of the Spin-Off process determine how the process is evaluated, perceived, initiated and implemented. Below is an example of spin-off process by Alexander Tübke.

One of the corporations having a spin-off is the Cendant, which is currently having an on-going debate whether to sale or do a corporate spin-off of its travel distribution services. Cendant is a

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corporation which is one of the world’s largest hotel franchisors, the world’s largest vacation ownership organization, and one of the world’s largest car rental operators. They are also the world’s largest real estate brokerage franchisor, and the world’s largest provider of outsourced corporate employee relocation services; and leading providers of travel information processing services worldwide. Cendant Corporation (NYSE:CD) and its PHH Corporation subsidiary announced last 2004 that Cendant intends to distribute the mortgage and fleet operations of PHH to Cendant shareholders. The transaction will be structured as a tax-free distribution of the common stock of PHH Corporation. The spin-off is expected to be consummated in the first quarter of 2005. Cendant’s relocation and fuel card businesses will remain a part of Cendant.

The spin-off reflects Cendant’s strategy to focus on the travel and residential real estate sectors. Cendant’s mortgage and fleet operations represent approximately 85 percent of the carrying value of the assets of PHH Corporation as of June 30, 2004. PHH is currently a wholly-owned subsidiary of Cendant, and files quarterly and annual reports with the Securities and Exchange Commission. But Cendant Corporation announced last April 24, 2006 that the plan to spin-off its Travel Distribution Services division to share holders which is anticipated to occur in October 2006 will also be considered a sale.

According to Henry Silverman the Chairman and CEO of TDS, that due to unsolicited indications of interest they received, they have decided to further explore other strategic alternatives for the business. The company has decided to consider a sale in addition to pursuing the spin-off is due, in part to the fact that TDS’s sales is not expected to result in a material tax liability as to other Cendant’s sales division. Read about Corporate Governance at Wipro

To have this great and huge company, economy expect also to have a large amount of share such as paying the tax rightly according to the citizen’s income. According to JFK in response to a question about taxes, life isn’t fair

“There’s always going to be an arbitrary element in taxation. If you tax everyone the same amount, some people won’t be able to afford it;
in Roman days, they had to sell themselves into slavery. If you tax everyone at the same rate, the rich have less of a burden than the
middle class and the middle class has less of a burden than the poor.

One can, however, apply some practical principles that taxation should never create perverse incentives or discourage people from working or investigation and should never decrease as a function of income. Taxation should be applied with regard to sound economic principles and should take account the varying ability of people to pay.”

The citizens of each country must be responsible enough to pay there responsibilities and obligations. The government must do something for the people be obliged to pay. The government must play there parts as well. Without the government to enforce payment, the creditor would not be getting the principal back, let alone any interest. Taxation of interest is just following the two most basic and widely accepted principles of taxation policy: ability to pay, and beneficiary pay.

References:

1.Cendant to Explore Possible Sale of Travel Distribution Services Division as an  Alternative to a Spin-Off  http://ww2.7online.com/Global/story.asp?S=4807577

2. http://www.cendant.com/investors/financial-data/historical-data/assets/documents/historicaldata/CD1Q06RevenueEBITDA.xls

3. http://en.wikipedia.org/wiki/Spin-off

4. Corporate-spin-off . 2003 Alexander Tübke  http://www.corporate-spin-offs.com/definition/definitions.htm

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