Capital Markets

Track Stars Cool Off

Has the tracking stock craze run its course?
Ian SpringsteelNovember 1, 2000

Has the tracking stock craze run its course? Since the spring downturn in the stock market, a dozen would-be trackers have been held or canceled. Issues including, New York Times Digital, and Cendant Corp.’s are either indefinitely on hold or languishing on bankers’ desks, waiting for market conditions to improve (see chart, above). Certainly part of the reason is the broad pressure on technology issues, which most trackers are. But critics say another, longer-lasting reason is the lackluster performance of most tracking issues, which has made institutional buyers more skeptical of the issues’ supposed value.

“Over the long run, the numbers show that with tracking issues, most shareholders [of the tracking stock] get the short end of the stick,” says Joe Cornell, a principal of Spin- Off Advisors LLC, an independent research firm based in Chicago. “The biggest downside we see is the lack of an opportunity for a change of control with trackers, as opposed to spin- offs.”

Of the 31 tracking stocks issued since General Motors Corp. created the first one in 1984, only 9 have outpaced the S&P 500 since their issue date, and 6 of them were issued last year, according to Spin-Off Advisors, including 3 from Genzyme General Corp.

So is tracking stock permanently derailed as a restructuring tool? Patricia Anslinger of McKinsey & Co. doesn’t think so. “Tracking stocks aren’t dead, but there will be fewer done for the wrong reasons,” she says.