Automatic Data Processing (ADP) is poised to complete the spinoff of its dealer services business, CDK Global, on September 30th with ADP shareholders receiving 1 share of CDK for every 3 shares of ADP owned. ADP is currently an S&P 500 index constituent and will remain so following the distribution. CDK Global, which will trade under the ticker ‘CDK’, will join the S&P Midcap 400. As a result of the move, E&P company Bill Barrett (BBG) will get dropped to the S&P Smallcap 600 where it will replace ITT Educational Services (ESI).
Given the prevalence of S&P 500 focused funds and ETFs, it’s always worth noting whenever a spinco like CDK gets dropped from the index. If the determination is made that CDK is worth buying, there is the possibility that forced selling might create an even more attractive entry price.
Disclosure: Author holds no position in any stock mentioned.