Business Context and Reporting Period
This Form 8-K, dated September 29, 2014, reports on Automatic Data Processing, Inc. (ADP) entering into a Separation and Distribution Agreement with CDK Global Holdings, LLC. The filing details the spin-off of ADP's Dealer Services business unit, which was completed on September 30, 2014, resulting in the creation of an independent public company, CDK Global, Inc.
Key Financial Metrics and Transaction Details
The filing does not provide specific revenue, profit, cash flow, or margin figures for the reporting period. Instead, it focuses on the structural financial mechanics of the spin-off:
- Distribution Ratio: ADP stockholders of record as of September 24, 2014, received one share of CDK Global common stock for every three shares of ADP common stock held.
- Shares Distributed: Approximately 160.6 million shares of CDK Global, Inc. were distributed.
- Consideration: The spin-off was executed without the payment of any consideration or the exchange of shares by ADP stockholders. Cash was paid in lieu of fractional shares.
- Debt and Liquidity: The filing notes that CDK Global entered into a credit agreement with JPMorgan Chase Bank, N.A., establishing a senior unsecured revolving credit facility and a senior unsecured term loan facility prior to the distribution. Specific debt amounts are not disclosed in this text.
Material Changes Versus Prior Period
The primary material change is the divestiture of the Dealer Services business unit. Prior to the distribution, ADP consolidated CDK Global's international and domestic subsidiaries under CDK Global, a wholly-owned subsidiary. Following the distribution, ADP and CDK Global operate as separate and independent companies. Additionally, Steven J. Anenen resigned as President of Dealer Services in connection with the spin-off.
Guidance, Outlook, and Risks
Management Commentary and Conditions: The separation was subject to several conditions, including board approval, SEC effectiveness of the registration statement, NASDAQ listing acceptance, and a tax opinion confirming the distribution qualifies as tax-free under Section 355 of the Internal Revenue Code. All conditions were satisfied or waived.
Risks and Contingencies:
- Indemnification: The agreement includes mutual indemnification provisions. CDK Global indemnifies ADP against liabilities arising from CDK Global's operations, contracts, and breaches. ADP indemnifies CDK Global against liabilities arising from ADP's retained business and operations.
- Asset Transfer: Assets and liabilities were transferred "as is, where is." The parties agreed to cooperate on delayed transfers, holding assets in trust until consummation.
- Information Access: Post-distribution, both entities agreed to provide necessary information to each other for regulatory compliance, audits, and litigation support.
Unusual Items: The filing references Unaudited Pro Forma Consolidated Financial Information in Exhibit 99.2, which is incorporated by reference but not detailed in the text of this summary.
Investor Verification Checklist
- Verify the specific terms of the credit agreement entered into by CDK Global with JPMorgan Chase Bank, N.A., including facility sizes and interest rates.
- Review the Unaudited Pro Forma Consolidated Financial Information (Exhibit 99.2) to understand the financial impact of the spin-off on ADP's standalone results.
- Confirm the tax treatment of the distribution for individual shareholders based on the Section 355 opinion referenced.
- Examine the ancillary agreements (tax matters, transition services, data center services, IP transfer, and employee matters) to assess ongoing operational dependencies between ADP and CDK Global.