Morgan Stanley (NYSE:MS) offered additional details regarding its pending
Discover Financial Services spin-off in a
Form 10-12B filing with the SEC. The spin-off is expected to be a tax-free distribution of its common shares to Morgan Stanley shareholders. The new entity is expected to be listed on the New York Stock Exchange under the ticker symbol "DFS" in the third quarter of this year. The already-approved spin-off would follow Mastercard's successful recent IPO and come in just before Visa's anticipated IPO later this year.
Discover itself is a leading credit card issuer and electronic payment services company with one of the most recognized brands in the U.S. financial services. Since its inception in 1986, the company has grown to become one of the largest card issuers in the United States, with more than 50 million cardmembers and $45.7 billion in managed receivables as of November 30, 2006. They are also a leader in payment processing, as they are only one of two credit card issuers with its own U.S. payments network and the only issuer whose wholly-owned network operations include both credit and debit functionality. In 2006, the company processed mroe than 3 billion transactions through their own network and the PULSE network. Overall, Discover's revenues (net interest income plus other income) have increased over the last three years, from $4.5 billion in 2004 to $5.1 billion in 2006, making them a substantial player in their market.
Typically, investors look for several criteria when selecting stocks. Given Discover's market leadership, strong growth, solid entrenchment, and excellent prospects, many investors will likely be interested in this new spin-off. Moreover, spin-offs themselves offer unique opportunities due to their inherent structuring. Often times, parent company shareholders do not want shares in the new entity, so they immediately sell them. This selling pressure creates a temporary mis-valuation, which can be a great opportunity for enterprising investors to take early positions. The spin-off's proceeds will also generate a significant amount of cash for Morgan Stanley - but an amount that has yet to be announced. These are two great
stocks to watch as the spin-off draws closer.
Related CompaniesMerrill Lynch & Co, Inc. (MER)Lazard Ltd (LAZ)Capital One Financial Corp (COF)