IBM expects to distribute at least 80.1% of the new company’s shares to current holders, with IBM retaining the rest for resale.
David Paul Morris/Bloomberg
IBM late Tuesday made a key filing with the Securities and Exchange Commission disclosing details of its planned tax-free spinoff of Kyndryl, the company’s 90,000-employee IT infrastructure business.
According to the filing, IBM (ticker: IBM) continues to expect to complete the Kyndryl spinoff before year-end. Kyndryl will list on the New York Stock Exchange under the symbol KD.
IBM expects to distribute at least 80.1% of the new company’s shares to current holders, with IBM retaining the rest for resale within the first 12 months after completion of the spinoff, likely in the form of an underwritten public offering.
The filing shows that Kyndryl on a pro forma basis had 2020 revenue of $19.4 billion, down from $20.3 billion in 2019 and $21.8 billion in 2018. For the 2021 first half, revenue on a pro forma basis was $9.4 billion. As stated in the filing, the company had losses on a GAAP basis in both 2020 and the first half of 2021, but that includes one-time charges related to both workforce reduction and the spinoff. While the filing doesn’t clearly disclose non-GAAP results, a source close to the transaction notes that on an adjusted basis, Kynrdryl had pretax profits of $378 million in 2020 and $156 million in the first half of 2021.
IBM said in the filing that Kyndryl addresses a market growing about 7% a year, to an expected $510 billion by 2024.
The company didn’t provide any forward guidance, and it didn’t provide any data on a future dividend policy. But IBM does say in the filing that “following the separation, the initial combined dividend level of Kyndryl and IBM is expected to be no less than IBM’s pre-spin dividend per share.” IBM shares have a current dividend yield of 4.7%.
As shown in the filing, Kyrndryl’s balance sheet would initially have about $1 billion in net debt. IBM has previously indicated that it expects Kyndryl to have an investment-grade credit rating.
The filing indicates that on a pro forma basis, IBM’s adjusted 2020 revenue would be $55 billion from continuing operations, down from the originally reported $73.6 billion.
IBM also announced Kyndryl’s board members. The 10-member group includes CEO Martin Schroeter, who also was named the company’s chairman. Stephen Hester, former CEO of the Royal Bank of Scotland, was named lead independent director.
Other board members include former Johnson & Johnson chief financial officer Dominic Caruso; John Harris, former CEO of Raytheon International; Shirley Ann Jackson, the president of Rensselaer Polytechnic Institute; Janina Kugel, former chief human resources officer at Siemens; Denis Machuel, CEO of Sodexo; Rahul Merchant, senior executive vice president of client service and technology at TIAA-CREF; Jana Schreuder, former chief operating officer at Northern Trust; and Howard Ungerleider, president and chief financial officer at Dow Inc.
Write to Eric J. Savitz at [email protected]
