HanesBrands: Key Issues for Shareholders

How the HanesBrands Spinoff Affects Sara Lee Stockholders

Shareholders Shafted?

Hanesbrands, which will begin trading September 6, 2006 under the ticker HBI, was spunoff by Sara Lee Corporation. HBI will have a mere 95 million shares outstanding. What does this mean? In the eyes of fund managers this spells liquidity issues - in other words, short term trading will have a significant effect on the stock's price in early trading (in yet other words we may see fund managers dumping shares). To top things off, HBI's debt rating of "junk" has created uncertainty as to which index it will be included in.

Management in the Money?

The HanesBrands Omnibus Incentive Plan of 2006 allows 13% of outstanding stock, or 13.1 million shares, be issued directly to directors and upper level employees at an exercise price 100% of fair market value of the stock on the 15th trading day following the distribution date. Obviously it will be advantageous to management for the stock to trade down prior to this date so they can lock in lower prices.

Buying Opportunity?

I am not going to speculate as to whether the above mentioned initial dip in the shareprice may present a buying opportunity for shareholders. Just food for thought.

As Successful as Coach?

Back in October 2000, Sara Lee spun off Coach, its luxury accessories business. Coach (COH) stock has attained almost 1000% gain since then (it started training at $3 and is now over $30). Coach established its position in the Japanese luxury product market and increased its number of stores significantly. In this situation, the spinoff from Sara Lee unlocked shareholder value. It's leaner and meaner structure allowed it to prosper. Will the same hold true for HanesBrands? Only time will tell.

References: Business Week Online, November 3, 2005 and Seeking Alpha, August 10, 2006.

Next News Item

• Sara Lee Debt - analysts are concerned that the debt HanesBrands will take with it (60%) may cripple its long term viability as a company.