US-based Automatic Data Processing (ADP) has confirmed plans to spin off its brokerage services unit into a separate publicly traded company through a tax-free distribution of shares.
The brokerage services business is one of the industry's largest and provides back office processing and clearing services to financial services firms. The unit also distributes financial reports and proxy materials to shareholders on behalf of corporations.
ADP says the move to divest the unit - which consists of its brokerage services and securities clearing and outsourcing services - will result in a $500m to $700m tax-free dividend.
The company expects to pay out the money to shareholders, or use it for share buybacks.
According to a Wall Street Journal report, which cites people familiar with the matter, the business will have a potential market value of $3.5bn.
The unit employs around 4000 and produced about 20% of ADP's overall revenue and net income in the year ending June 30 2006, generating $2bn in revenue and $300m in net income.
Commenting on the move, Gary Butler, president, COO and CEO-elect, ADP, says: "The brokerage industry has changed in recent years, and while still attractive in terms of long-term growth opportunities, as part of ADP, the growth profile of Brokerage Services Group is below the potential that we believe exists in Employer Services and Dealer Services."
"We expect brokerage services group will be a strong and viable stand-alone public company," he adds.
The spin-off is expected to be completed by the end of fiscal 2007.
ADP says its retiring chief executive Art Weinbach will assume the role of chairman of the new public company. The unit's co-presidents, Rich Daly and John Hogan, will assume the roles of CEO and operations chief, respectively.