Capital Southwest Sets Date And Ratio For CSW Industrials Spinoff

Capital Southwest Corporation(CSWC), a Business Development Company, announced late last year that it would spin off its industrial products, coatings, sealants and adhesives and specialty chemicals businesses into a separate, publicly traded company.  Yesterday, the company announced that its Board of Directors had approved the spinoff of CSW Industrials. The new company will trade under the ticker CSWI.

Shareholders of Capital Southwest as of September 18 will receive one share of CSW Industrials on September 30 for each share of Capital Southwest held.

As previously announced, following the spin-off, Joseph B. Armes, Capital Southwest’s current Chairman and Chief Executive Officer, will continue to serve as Capital Southwest’s Chairman and will serve as CSWI’s Chairman and Chief Executive Officer, and Bowen S. Diehl, Capital Southwest’s Senior Vice President and Chief Investment Officer, will serve as Capital Southwest’s Chief Executive Officer.

Beginning on or shortly before September 18, 2015 through September 30, 2015, there will be two markets in Capital Southwest shares:

• a “regular-way” market in which Capital Southwest shares will trade with the right to receive shares of CSWI common stock on the distribution date; and
• an “ex-distribution” market in which Capital Southwest shares will trade without the right to receive shares of CSWI common stock on the distribution date.

Interestingly, the company is moving forward based on an opinion from an accounting firm as to the non-taxable nature of the distribution.

The share distribution is also conditioned on Capital Southwest’s receipt of an opinion from a nationally recognized accounting firm that the share distribution should meet the requirements necessary to be tax free to Capital Southwest and holders of Capital Southwest’s common stock under Sections 355 and 368(a)(1)(D) of the Internal Revenue Code, except, in the case of Capital Southwest’s shareholders, with respect to any cash received in lieu of fractional shares of CSWI’s common stock.  Capital Southwest shareholders are urged to consult their own tax advisors as to the specific tax consequences of the share distribution to them, including the application and effect of state, local or non-U.S. tax laws and of changes in applicable tax laws

Given the clear operating nature of the businesses to be spun off, this should not be an issue, but it is interesting to note that this strategy is a possibility for Yahoo’s(YHOO) spinoff of Aabaco Holdings, which primarily consists of its Alibaba(BABA) stake, after yesterday’s announcement that the IRS had declined to issue a private letter ruling in the matter.

Disclosure: The author holds shares in Yahoo