Item 1A. Risk Factors
Item 1A. Risk Factors.
Other than as set forth below, there have been no material changes to the Risk Factors previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2020 or our Quarterly Reports on Form 10-Q for the quarters ended March 31, 2021 and June 30, 2021.
The planned spinoff of our LoyaltyOne segment may not be completed on the terms or timeline currently contemplated, if at all, and may not achieve the expected results.
On October 13, 2021, the Board of Directors of Alliance Data Systems Corporation, or ADSC, approved the previously announced Separation of its LoyaltyOne segment, consisting of its Canadian AIR MILES® Reward Program and Netherlands-based BrandLoyalty businesses, into an independent, publicly traded company, Loyalty Ventures. The Separation will be completed through the pro rata distribution of 81% of the outstanding shares of Loyalty Ventures to holders of the Company’s common stock at the close of business on the record date of October 27, 2021, with ADSC retaining the remaining 19% of the outstanding shares of Loyalty Ventures. ADSC stockholders of record at the close of business on October 27, 2021 will receive one share of Loyalty Ventures common stock for every two and one-half (2.5) shares of ADSC common stock. The distribution is expected to qualify as a tax-free reorganization and a tax-free distribution to ADSC and its stockholders for U.S. federal income tax purposes and is expected to be completed on November 5, 2021.
The completion of the distribution is subject to a number of customary conditions, including ADSC’s receipt of an opinion from its tax advisor confirming that the distribution qualifies as tax-free for U.S. federal income tax purposes for ADSC and its stockholders (except for cash received in lieu of fractional shares). ADSC has received a private letter ruling from the Internal Revenue Service to this effect. The ADSC Board reserves the right in its discretion to delay the distribution, change any of the terms relating to the distribution, or abandon the distribution.
There are numerous risks associated with the planned spinoff, including, but not limited to, the risk of significant additional costs being incurred to effect the spinoff, particularly if it is delayed or does not occur at all; the risk of disruption to our business in connection with the spinoff negatively impacting our results of operations; the risk that the spinoff will require significant time and attention from our senior management and employees, negatively impacting operations; the risk that we may find it more difficult to attract, retain and motivate employees during the pendency of the spinoff or following its completion; the risk that the companies resulting from the spinoff do not realize all of the expected benefits of the spinoff; the risk that the smaller, independent companies resulting from the spinoff will be less diversified with a narrower business focus that makes one or both more vulnerable to changing market conditions or takeover by third parties; the risk that the spinoff will not be tax-free for U.S. federal income tax purposes; and the risk that there will be a loss of synergies from separating the businesses that could negatively impact the balance sheet, profit margins or earnings of one or both companies. The potential negative impact of the events described above could have a material adverse effect on our business, financial condition, results of operations and prospects, whether we are constituted as two independent publicly-traded companies after the spinoff is completed or as one company as currently constituted.
Following the spinoff, the share price for our common stock may fluctuate significantly.
We cannot predict the effect of the spinoff on the trading price of shares of our common stock. The trading price of shares of ADSC common stock immediately following the planned spinoff is expected to be lower than immediately prior to the spinoff because the trading price will no longer reflect the value of the LoyaltyOne business. Moreover, we cannot assure you that the combined trading prices of our common stock and Loyalty Ventures’ common stock after the spinoff, as adjusted for any changes in the combined capitalization of both companies, will be equal to or greater than the trading price of our common stock prior to the spinoff. Until the market has fully evaluated our business without
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Loyalty Ventures, the price at which our common stock trades may fluctuate significantly. In addition, the trading price of our common stock may be more volatile around the time of the spinoff.
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