Spinoffs

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.

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Spinoffs Library Archives

We prefer Texas Instruments

ANALOG DEVICES INC. $116 is a sell. The analog chipmaker (New York symbol ADI; Manufacturing sector; Shares outstanding: 369.2 million; Market cap: $42.8 billion; Dividend yield: 2.1%; Takeover Target Rating: Medium; www.analog.com) recently agreed to acquire Maxim Integrated Products (Nasdaq symbol MXIM) in an all-stock transaction that will see… Read More

Let these stock updates help direct you

KONTOOR BRANDS INC. $25 is still a buy for aggressive investors. The stock (New York symbol KTB; Consumer sector; Shares outstanding: 56.9 million; Market cap: $1.4 billion; Dividend suspended; Takeover Target Rating: Medium; www.kontoorbrands.com) gives you a stake in this denim apparel maker and its increasingly popular “heritage” brands… Read More

Spilt has helped them cope with COVID

On November 1, 2015, the old Hewlett-Packard Co. split into two firms—Hewlett-Packard Enterprise and HP Inc. For every share they held in the old HP, shareholders received one share in each of the new companies.
HP Inc., which makes PCs and printers, is now up 59%… Read More

Both will use spinoffs to cut their debt

These two firms are planning spinoffs to pay down their high debt. However, their remaining businesses will likely still carry heavy debt loads.
DELL TECHNOLOGIES INC. $67 is a hold. The company (Nasdaq symbol DELL; Manufacturing sector; Shares outstanding: 746.7 million; Market cap: $50.0 billion; No dividend paid;… Read More

COVID-19 clouds Ecolab’s outlook

ECOLAB INC. $208 is a hold. The company (New York symbol ECL; Manufacturing sector; Shares outstanding: 285.4 million; Market cap: $59.4 billion; Dividend yield: 0.9%; Takeover Target Rating: Medium; www.ecolab.com) develops and markets chemicals and services for cleaning, pest elimination, sanitizing, and maintenance. It sells to customers in the… Read More

Extra costs weigh on Albertsons

ALBERTSONS COMPANIES INC. $13 is a hold. The company (New York symbol ACI; Consumer sector; Shares outstanding: 479.0 million; Market cap: $6.2 billion; No dividend paid; Takeover Target Rating: Medium; www.albertsonscompanies.com) is one of the largest food retailers in the U.S. with 2,252 stores in 34 U.S. states and… Read More

Activists see their takeover possibilities

Activist firms often provide the pressure that targeted firms need to consider takeover bids. While those deals can be highly lucrative for activist investors, they can also pay off for other shareholders. Our exclusive Takeover Target Rating system aims to assess the possibility of a.. Read More

Edgewell has high takeover appeal

In July 2015, Energizer Holdings split into personal-care products maker Edgewell and battery-manufacturer Energizer—a move that created two pure-play leaders in their markets.
Edgewell has dropped over 60% since the split, which has prompted it to re-focus on more profitable businesses. It’s also aggressively cutting its… Read More

Keep your skepticism

Here’s an Excerpt from the June 16 issue of Advice for Inner Circle Pro Members:
“ETFs (Exchange-traded funds) may have a role to play in your portfolio. As with any investment, however, you need to approach them with a healthy sense of skepticism, if not an outright… Read More

Two spinoffs for post-pandemic gains

Yum Brands has jumped 54% since it spun off Yum China in November 2016. That spinoff stock, by the way, has soared 113%!
At the time of the split, investors received one share of the new firm for each Yum Brands share they held. We still… Read More

Let these stock updates help direct you

THYSSENKRUPP AG (ADR) $7.52 is okay to hold, but only for aggressive investors. The company (U.S. over-the-counter bulletin board symbol TKAMY; Shares outstanding: 622.5 million; Market cap: $4.7 billion; Dividend suspended in 2020; Takeover Target Rating: Medium; www.thyssenkrupp.com) is a German industrial conglomerate with operations that manufacture steel, automotive… Read More

ADT strikes an important alliance

ADT INC. $12 is a buy. The company (New York symbol ADT; Shares outstanding: 760.8 million; Market cap: $9.1 billion; Dividend yield: 1.2%; Takeover Target Rating: Medium; www.adt.com) is a leading provider of monitored security products and services to residential and commercial customers in the U.S. and Canada. It… Read More

These spinoffs are off to stellar start

On April 3, 2020, aerospace products maker United Technologies spun off its Otis (elevators) and Carrier (heating and air conditioning equipment) businesses as separate firms. For each share held, investors received 0.5 of a share in Otis and 1 share in Carrier.
Note—United Technologies then merged… Read More

GCP takes steps to boost its value

GCP APPLIED TECHNOLOGIES INC. $27 is a buy for aggressive investors. The company (New York symbol GCP; Manufacturing sector; Shares outstanding: 73.0 million; Market cap: $2.0 billion; No dividend paid; Takeover Target Rating: Medium; www.gcpat.com) is a leading maker of specialty construction chemicals and building materials. In February 2016,… Read More

Both these spinoffs are up for investors

As we often remind readers that spinoffs are a great way for companies to unlock value for investors. A recent spinoff, Trane Technologies, has recovered most of its COVID-19-induced losses and is ready to move even higher. Shares of retailer L Brands have also jumped… Read More

Ferrari will see big sales in 2021

FERRARI N.V. $195 is a buy for aggressive investors. The Italian luxury sports automaker (New York symbol RACE; Manufacturing sector; Shares outstanding: 184.8 million; Market cap: $36.0 billion; Dividend yield 0.6%; Takeover Target Rating: Medium; www.ferrari.com) took its current form in 2015 when parent company Fiat Chrysler Automobiles N.V…. Read More

We agree with activists on these buys

Some activist investors have a spotty record when it comes to boosting shareholder value. It’s why we independently assess all companies—including those targeted by activists—before recommending them to our readers. In the case of Crown Castle and eBay, we feel the participation of prominent activists… Read More

Beware predictions

Here’s an Excerpt from the June 16 issue of Advice for Inner Circle Pro Members:
“The investment business is riddled with conflicts of interest. These conflicts have a way of tainting investment predictions so that they agree with and support sales pitches. Your best defence against this… Read More

Spinoff will unlock pure-play value

Rent-to-own furniture retailer Aaron’s is now spinning off its faster-growing Progressive financing division. The separation creates two pure-play businesses that will be easier for investors to value, particularly as COVID-19 continues to slow in-store customer traffic.
AARON’S INC. $57 is a spinoff buy. The company (New York symbol… Read More

These spinoffs will thrive post-COVID

Multinational chemical maker DowDupont (now DuPont de Nemours) unlocked value for its investors in 2019 with not one but two spinoffs. Each of the new firms is now free to focus on improving its own operations and cutting costs to lift profitability.
Shareholders received one share… Read More