One of the ways a company can try to unlock its own hidden value is by creating a separate company out of a corporate subsidiary. The parent company can either sell stock in the new company to the public, or spin it off—hand the stock out to its own investors.
Often, the parent company starts by selling a portion of the new company to the public, to establish a market and a following among investors. That way, by the time of the spin-off, stock in the new company may be liquid enough to be sold relatively easily, or retained with some confidence as a worthwhile investment.
In our experience, and in most academic studies of the subject, this helps the parent and its corporate spinoff. Both generally do better than comparable companies for at least several years after the spinoff takes place.
When a company carries out a spinoff, it sets up one of its subsidiaries or divisions as a separate company, then hands out shares in the new company to its own shareholders. It may hand out the shares as a special dividend, or give its shareholders an opportunity to swap shares of the parent company for the shares of the newly established spinoff.
Study after study has shown that after an initial adjustment period of a few months, stock spinoffs tend to outperform groups of comparable stocks for several years. (For that matter, the parent companies also tend to outperform comparable firms for several years after a spinoff.) The above-average performance of spinoffs makes sense for a couple of reasons.
First, company managers naturally prefer to acquire or expand their assets, not get rid of them. Getting rid of assets reduces a company’s total potential profit. The management of a parent company will only hand out a subsidiary to its own investors if it’s nearly certain that the subsidiary, and the parent, will be better off after the spinoff than before.
Second, spinoffs involve a lot of work and legal fees. Companies only have an incentive to do spinoffs under two sets of favourable conditions: When they feel it isn’t a good time to sell (which often means it’s a good time to buy); or, when they feel the assets they plan to spin off will be worth substantially more in the future, possibly within a few years.
Quite often, a big company will spin off a small subsidiary because it feels the subsidiary is a tiny gem, but that it’s too small to make an impact on the much larger financial statements and market capitalization of the parent.
At TSI Network we’ve had great success with a number of spun off stocks over the years. That’s especially true of the many spinoffs we have recommended that have gone up after they began trading, and have later attracted a takeover bid at a substantial premium over the market price.
Needless to say, things don’t always work out this well. Spinoffs and their parents do sometimes run into unforeseeable woes. But on the whole, in investing, spinoffs are the closest thing you can find to a sure thing.
See how you can make the most of these special investment opportunities by reading our special free report Spinoff Stock Investigator: All You Need to Know about Reaping the Rewards of Spinoffs.
You Can See Our Spinoff Stock Portfolio For March 2025 Here.
Why we like spinoffs so much
We think that spinoffs are the closest thing you can find to a sure thing for two main reasons:
1) The management of a parent company will only hand out shares… Read More
TITAN AMERICA SA $16 is a hold. The company (New York symbol TTAM; Manufacturing sector; Shares outstanding: 184.4 million; Market cap: $3.0 billion; No dividends paid; Takeover Target Rating: Lowest; www.titanamerica.com) makes cement and other building materials, mainly for customers in Florida and the U.S. Eastern Seaboard.
On February 7,… Read More
HEWLETT-PACKARD ENTERPRISE CO. $22 is a hold. This firm (New York symbol HPE; Manufacturing sector; Shares outstanding: 1.3 billion; Market cap: $28.6 billion; Dividend yield: 2.4%; Takeover Target Rating: Medium; www.hpe.com) agreed to acquire Juniper Networks Inc. (New York symbol JNPR) in January 2024 for $14.0 billion in cash… Read More
Specialized insurer Trisura took its current form on June 22, 2017, when Brookfield Asset Management Inc. (now Brookfield Corp.) spun off its specialty insurance business as Trisura. Investors received one Trisura share for every 170 Brookfield shares they held.
After moving sideways for a few years,… Read More
WK KELLOGG CO. $20 is a spinoff buy. The company (New York symbol KLG; Consumer sector; Shares outstanding: 85.8 million; Market cap: $1.7 billion; Dividend yield: 3.3%; Takeover Target Rating: Medium; www.wkkellogg.com) makes breakfast cereals and related products for the North American market.
In October 2023, the old Kellogg Co… Read More
In November 2016, Yum Brands set up its Chinese operations as Yum China and gifted its investors with shares in the new company. Specifically, investors received one share of the new firm for each YUM share they held.
Both stocks continue to rebound from pandemic closures,… Read More
LKQ CORP. $39 is a hold. The company (Nasdaq symbol LKQ; Manufacturing sector; Shares outstanding: 260.0 million; Market cap: $10.1 billion; Dividend yield: 3.1%; Takeover Target Rating: Medium; www.lkqcorp.com) sells replacement parts for cars and light trucks in North America and Europe.
LKQ stands for “Like, Kind & Quality.” That’s… Read More
We pay close attention to activist investors, as they tend to target undervalued companies that could boost their value with asset sales or spinoffs. However, we see better opportunities than these three activist targets (including box).
UBER TECHNOLOGIES INC. $81 is a hold for aggressive investors. The… Read More
The shares of embecta are now down over 60% since Becton Dickinson (see page 17) spun it off as a separate firm in April 2022.
That decline is largely due to fears that new GLP-1 weight loss drugs, such as Ozempic, will cut demand from diabetics… Read More
TC ENERGY CORP. $65 is a buy. The company (Toronto symbol TRP; Utilities sector; Shares outstanding: 1.04 billion; Market cap: $67.6 billion; Dividend yield: 5.2%; Takeover Target Rating: Medium; www.tcenergy.com) spun off its oil pipeline business as a separate company called South Bow Corp. (Toronto symbol SOBO). Investors… Read More
After many years of expanding through acquisitions—20 purchases since 2020—medical device maker Becton Dickinson is now narrowing its focus through spinoffs.
In April 2022, the company spun off its Diabetes Care business as embecta (see page 19). Investors received one share of embecta for every five… Read More
HOWARD HUGHES HOLDINGS INC. $75 is a hold. The company (New York symbol HHH; Manufacturing sector; Shares outstanding: 49.7 million; Market cap: $3.7 billion; No dividend paid; Takeover Target Rating: Medium; www.howardhughes.com) was originally part of billionaire businessman Howard Hughes’ real estate holdings. Today, it’s a Dallas-based developer of… Read More
You Can See Our Spinoff Stock Portfolio For February 2025 Here.
Why we like spinoffs so much
We think that spinoffs are the closest thing you can find to a sure thing for two main reasons:
1) The management of a parent company will only hand out shares… Read More
FLOWCO HOLDINGS INC. has filed paperwork with U.S. regulators for an initial public offering (IPO) of 17.8 million class A common shares at between $21.00 and $23.00 a share. The shares will trade on the New York exchange under the symbol “FLOC.” Insiders will control roughly… Read More
NORDSTROM INC. $24 is a hold. The retailer (New York symbol JWN; Consumer sector; Shares outstanding: 164.9 million; Market cap: $4.0 billion; Dividend yield: 3.2%; Takeover Target Rating: Highest; www.nordstrom.com) owns and operates 381 stores in the U.S.. Those locations sell upscale clothing and footwear.
The company has accepted a.. Read More
Despite owning some of the world’s best-known personal care brands, the shares of Edgewell are down over 60% since it became a separate company in July 2015.
However, a new cost-cutting plan should improve its profitability and let it pay down its high debt load. The… Read More
LENNAR CORP. $136 is a spinoff buy. The company (New York symbol LEN; Manufacturing & Industry sector; Shares outstanding: 271.2 million; Market cap: $36.9 billion; Dividend yield: 1.4%; Takeover Target Rating: Medium; www.lennar.com) is one of the largest homebuilders in the U.S.
The company will spin off its land acquisition business as… Read More
In October 2019, foodmaker Post sold shares of its BellRing Brands business to the public through an IPO. Since then, Post shares are roughly flat while BellRing has soared over 440%. We still like the long-term outlook for both.
POST HOLDINGS INC. $106 is a buy. The… Read More
Activists have targeted these two companies as they plan to replace their long-serving CEOs. While that pressure has helped spur their shares, we feel CAE is the better choice for your new buying.
CAE INC. $35 is a buy. The company (Toronto symbol CAE; Manufacturing & Industry sector;… Read More
FedEx has rebounded strongly after falling to $148 in September 2022. The gain is largely due to an activist investor, which has pushed the company to cut costs and improve efficiency.
After a strategic review, FedEx now plans to spin off its smaller trucking division as… Read More
