The trading price of Standard Pacific Corp.'s stock rose 8.5% Wednesday in the wake of the Costa Mesa home-building company's announcement that it will press ahead with plans to reorganize into a limited partnership.
Arthur E. Svendsen, Standard Pacific's chairman and chief executive officer, said at the company's annual shareholders meeting Tuesday that the company's management had decided to implement plans originally adopted in January by the directors. A feasibility study completed since then has shown that the change in status would mean a sizable tax savings for the company--which would increase the return to investors.
After word of the company's commitment to restructuring hit Wall Street at the start of trade Wednesday morning, the price of Standard Pacific stock increased $2.37 a share on the New York Stock Exchange to $30.25 per share at the close of the market.
Robert Curran, vice president and securities analyst with Merrill Lynch in New York, said the market was buoyed by the prospect that Standard Pacific's proposed change in status from a corporation to a partnership will free it from corporate income tax and enable it to distribute more money to investors, who would become limited partners.
But the advantage of such a conversion, Curran added, could be thwarted by tax reform legislation, proposed by the House of Representatives. That measure would force companies making such a change to pay tax on the difference between book and market value upon liquidation of the corporation. Such a tax, Curran said, would be so onerous that it would make reorganizations such as that planned by Standard Pacific unfeasible.
Curran added, however, that an alternative tax bill being considered by the Senate does not include the corporate liquidation tax provision.
Robert J. St. Lawrence, Standard Pacific's chief financial officer, said the company announced its intention to become a limited partnership in January in hopes that it will qualify for a grandfathering exemption from any new tax reform legislation.
Standard Pacific's conversion from a corporation to a limited partnership still must be approved by the company's shareholders. At the annual meeting Tuesday, Svendsen said proxy solicitation materials are now being prepared for submission to shareholders at a special meeting to vote on the restructuring. He said the meeting probably will be held in late September.
If shareholder and regulatory approvals are obtained, the company anticipates completing the transition to a limited partnership in late December or early January.