Dun & Bradstreet
said Wednesday that it planned to split itself into two companies, spinning off
Moody's Investors Service
, its highly profitable credit-rating division.
Investors endorsed the move, as Dun & Bradstreet's stock jumped 2 11/16, or 10%, to close at 29 3/4.
But in a slight among peers, the company's rival,
Standard & Poor's
, put some of Dun & Bradstreet's debt securities on Credit Watch with negative implications because of its plan to split in two. That could lead to a downgrade of S&P's rating.
Specifically, Standard & Poor's is evaluating its A-1 rating on the company's short-term corporate credit and commercial paper.
Dun & Bradstreet, based in Murray Hill, N.J., is a leading provider of business information.
But it is also a company with a history of debt of its own. As of the end of fiscal 1999's third quarter, it had $102.5 million of commercial paper borrowings outstanding.
"A rating cut would probably be reasonable because you'd have two businesses with less operating profit to cover debt," said James Dougherty, an analyst at
who rates the stock accumulate. "When you don't know where the debt is going, you create uncertainty, and the bond market doesn't like uncertainty."
In its latest financial report filed, Dun & Bradstreet said that the
Internal Revenue Service
"is continuing its review of the utilization of certain capital losses during 1989 and 1990 and the Company expects that the IRS will challenge the company's treatment of certain of these losses."
If the IRS wins, the company could be forced to pay approximately $540 million for taxes and accrued interest as of Sept. 30, 1999, according to the report.
Dun & Bradstreet said its plan to split off Moody's was aimed at creating two companies more sharply focused on their core businesses.
It also said it expected the move to increase the stock market value of both companies.
Dun & Bradstreet has attempted to become more focused on its core business for several years. The company has spun off
directory publisher, as well as the market research companies
"They're doing the best they can to work themselves out of a bad situation," Dougherty said. "They have a business that is not as attractive to customers as it once was."
The stock has skidded 21% since the beginning of May.
The company said it had hired the investment banking firm
to develop a structure for the separation. It said the split-up was contingent on board approval and favorable tax rulings from the IRS.