Sink or Swim? Cytec Industries' Spin-Off (Case Series)
Posted: 31 Jul 1998
Date Written: September 1996
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Cytec was created through a spin-off by American Cyanamid that packaged a poorly performing division with substantial environmental and retirement liabilities. The stock market's assessment of Cytec's prospects was grim, but Cytec's managers believed that through changes in corporate culture and strategy they could create value. In fact, as the (B) case shows Cytec experienced dramatic performance improvement, earning a stock return of 345% over the first two years of its life as a free-standing public company. Underlying Cytec's increase in stock price was a substantial turnaround in both profitability and cash flow.
This case provides a dynamic context in which to explore the organizational and management implications of spin-offs. It provides a description of the contractual arrangements that define the terms of the spin-off, and the tensions associated with the negotiations to arrive at these terms. The case also illustrates how the management practices of a parent corporation affect divisional performance, and how changing inappropriate management practices provides an opportunity to create value. It emphasizes the interconnectedness of what are often considered the soft aspects of management, such as shaping corporate culture and mission and the hard aspects such as increasing profitability and creating shareholder value. Careful study of the spin-off's terms and of management-led initiatives at Cytec stimulates active discussion of techniques for managing changes in strategy, structure and culture in organizations. Cytec's spin-off allowed it to break from counter-productive aspects of Cyanamid's management style and adopt practices that were more effective and more suitable to its business. The outcome was both the development of a healthier corporate culture and the creation of value for shareholders.
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