Case 39: Roxio

Roxio, a wholly-owned subsidiary of Adaptec, recently finalized its decision to become a completely separately traded corporation. In their own words, Roxio describes themselves as "... a leading provider of digital media software solutions that enable individuals to create, manage and move music, photos, video and data onto recordable compact discs, or CDs. Our principal products are our East CD Creator and Toast families of CD recording software and our GoBack system recovery software. Our software was bundled with approximately 70% of the CD recorders shipped in 2000.

We sell our products to a wide range of customers, including leading personal computer, or PC, and CD recordable drive manufacturers and integrators such as Dell, Hewlett-Packard, Philips and Yamaha. Sales to PC and CD recordable drive manufacturers and integrators generate 64% of our net revenues for the nine months ended December 31, 2000. We also sell our products to retailers through our distributors, such as Computer 2000, Ingram Micro, Softbank and Tech Data, and directly to end users. Sales to retailers through our distributors and directly to our end users generated 36% of our net revenues for the nine months ended December 31, 2000."

Concerning the independence of Roxio from Adaptec, "... we will enter into a Master Separation and Distribution Agreement and several ancillary agreements for the purpose of accomplishing the contribution of substantially all of the business and assets of Adaptec's software products group to us and the distribution of our common stock to Adaptec's stockholders (at a ratio of 1 Adaptec share = 0.1646 shares of Roxio)."

Questions

1. Although the benefits can vary from firm to firm, what do you imagine are the common benefits to a firm when they spin-off from a larger corporation?

2. What are the key risk factors associated with any spin-off?

3. Will Adaptec, Inc. keep any of the shares in Roxio? If so, why?

4. Do you imagine Roxio will pay a dividend in the near future?