Tracking Stock

Summary: Tracking stocks were separate classes of common stock issued by a single
(parent) company, and represented claims on the profits and cash flows generated
by certain distinct businesses that belonged to the company.

Pros: DuPont will be able to track the high-growth division of Conoco, and be able to
divest the sectors they are not interested in.

Cons: The tax treatment regarding the issuance of tracking stocks is the same as
spin-offs and split-offs. They will have to hold majority stake within Conoco before
being able to issue on a tax-free basis.

Stock Price Implication

Assuming DuPont divests of Conoco through an equity spinoff, When Conoco starts
trading on its own, the share price of DuPont will drop by the value of the new
company, now separated from the parent. The lost value of Conoco will be reflected
in the new share price of Conoco. DuPont will lose value in its stock price initially,
until the market takes into account the spin-off and investors react to the split.

Counter-Defenses

Autonomy
Conocos CEO Archie Dunham began to explore options for his companys future in
1997. He brought in several consulting companies, in which they discussed several
options consisting of a merger, a sell off, or operating as an independent company,
Dunham was very eager on supporting a IPO scenario.

Feedstock source for DuPont
DuPont is shifting away from the traditional energy and chemicals business and is
focusing more on their life sciences division. The strategic change in operations will
not be beneficial for DuPont or Conoco because their lines of business will now be
different.

Compensation to Managers
I didnt find much information on this, other then what Francis had. Conocos top
executives (12) own Class A shares of Conoco from the IPO. Negotiations on behalf
of Conocos shareholders will also be tied to managements interest.

Block Sale/MBO
Management does not own enough equity in the company for a management
buyout. Also the oil & gas industry is very cyclical, which lead to unsteady cash
flows. Leverage buys out, which require a company to take on a lot of debt, typically
works better for a company with steady, consistent cash flows