ADP To Spin Off Brokerage Arm

Automatic Data Processing announced Tuesday that the firm will spin off its brokerage services subsidiary in what is expected to be a $3 billion initial public offering
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Automatic Data Processing announced Tuesday that the firm will spin off its brokerage services subsidiary in what is expected to be a $3 billion initial public offering.

ADP’s announcement surprised some analysts because the decision comes less than two years after the firm bought up two bank-owned clearing businesses, creating a three-pronged back-office processing model that also included an outsourcing component.

Expected to be completed by years end of 2007, the deal will bring in tax-free dividends between $500 million and $700 million.

The spin-off is expected to yield roughly $2 billion in revenue and will be composed of Brokerage Processing Services and Securities Industry Software units as well as the Clearing and Outsourcing Services business, comprising more than 4,000 employees.

Arthur Weinbach, ADP’s retiring CEO, says he will move to the spin-off to serve as chairman of the reconstituted Brokerage Services Group, bringing with him current co-presidents Richard Daly and John Hogan. Daly will become CEO of the spin-off and Hogan will serve as COO.

“Fit and focus is the underlying theme of this transaction,” ADP COO and CEO-elect Gary Butler said Tuesday. “The brokerage industry has changed in recent years, and while still attractive in terms of long-term growth opportunities, as part of ADP, the growth profile of brokerage services group is below the potential that we believe exists in employer services and dealer services.”

ADP has recently only seen single-digit growth in its brokerage services and hopes that by redirecting its focus solely on its payroll-processing and back office business efforts, it can move growth into double digits.

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