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

Social media darling plans an IPO

REDDIT INC. has filed paperwork with U.S. regulators for an initial public offering (IPO) of common shares. The shares will trade on New York under the symbol RDDT.
Based in San Francisco, the company operates online forums that lets registered users (called “Redditors”) post and share content… Read More

Let our stock updates help direct you

ENERPLUS CORP. $24 is a hold. The company (Toronto symbol ERF; Resources sector; Shares outstanding: 203.3 million; Market cap: $4.9 billion; Dividend yield: 1.4%; Takeover Target Rating: Highest; www.enerplus.com) produces oil and gas mostly from properties in the Bakken area of North Dakota, the DJ Basin in Colorado, and… Read More

This breakup produced three buys

A key reason behind the success of spinoffs is that investors tend to prefer “pure-play” businesses that are easier to analyze and value.
A great example of this is trucking firm XPO, which has spun off two of its businesses in the past three years. Since… Read More

Losses balloon at this new firm

NCR VOYIX CORP. $13 is a hold. The company (New York symbol VYX; Manufacturing sector; Shares outstanding: 141.2 million; Market cap: $1.8 billion; No dividend paid; Takeover Target Rating: Medium; www.ncrvoyix.com) took its current form on October 16, 2023 when the old NCR Corp. (New York symbol NCR) split… Read More

The payoff from AI will take time

On November 1, 2015, the old Hewlett-Packard Co. split into two firms—HP Inc. and Hewlett-Packard Enterprise. For every share they held in the old HP, shareholders received one share in each of the new companies.
HP is now up over 120% since the split, while HP… Read More

Potential payouts add to its risk

NORFOLK SOUTHERN CORP. $263 is a hold, but only for aggressive investors. The company (New York symbol NSC; Manufacturing sector; Shares outstanding: 225.9 million; Market cap: $59.4 billion; Dividend yield: 2.1%; Takeover Target Rating: Medium; www.norfolksouthern.com) operates a railway network that transports goods across the U.S. eastern seaboard and… Read More

Both stand against takeover attempts

Activist investors look for companies with under-appreciated assets that they feel would benefit from better management teams. That includes Macy’s, which is now the target of a takeover offer, and Parkland, which could attract a bid. However, both could drop suddenly if they successfully fend… Read More

High debt a concern for both picks

In April 2022, AT&T merged its WarnerMedia entertainment business with Discovery Inc. to form Warner Bros. Discovery (Nasdaq symbol WBD). AT&T investors received 0.241917 shares of WBD as a tax-free distribution for each share they owned. At that time, AT&T shareholders owned 71% of the… Read More

Spinoff spotlight: 3M Company

3M COMPANY $104 is a buy for long-term gains. The company (New York symbol MMM; Manufacturing & Industry sector; Shares outstanding: 552.7 million; Market cap: $57.5 billion; Dividend yield: 5.8%; Takeover Target Rating: Medium; www.3m.com) will spin off its Health Care division as a separate firm called Solventum Corp… Read More

More gains on tap for these spinoffs

On April 3, 2020, aerospace and military equipment maker RTX Corp. (formerly called Raytheon Technologies, New York symbol RTX) spun off its Otis (elevators) and Carrier (heating and air conditioning equipment) businesses. For each UTX share they held, investors received 0.5 of a share in… Read More

This new IPO is off to a slow start

PERFECT MOMENT LTD. $5.36 is a hold. The company (NYSE MKT [formerly the American Stock Exchange] symbol PMNT; Consumer sector; Shares outstanding: 15.8 million; Market cap: $84.7 million; Takeover Target Rating: Lowest; www.perfectmoment.com) specializes in premium-priced skiwear, such as jackets, sweaters and pants, as well as non-ski apparel like… Read More

Keep on top of stock updates: Indigo, Cedar Fair & Mullen Group

INDIGO BOOKS & MUSIC INC. $2.06 is a hold. The company (Toronto symbol IDG; Consumer sector; Shares outstanding: 27.8 million; Market cap: $57.3 million; No dividend paid; Takeover Target Rating: Lowest; www.chapters.indigo.ca) operates 172 bookstores, mainly under the Chapters and Indigo banners.
Indigo’s major shareholders, Gerald W. Schwartz and his… Read More

In this case, we prefer the parent

The shares of contract manufacturer Flex (formerly called Flextronics International) traded in a narrow range for most of the past 10 years. However, the stock started to move up in late 2022 when the company announced that it would spin off its solar panel tracking… Read More

Spinoff creates a pure-play firm

HOWARD HUGHES HOLDINGS INC. $76 is a hold. The company (New York symbol HHH; Manufacturing sector; Shares outstanding: 50.1 million; Market cap: $3.8 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

These two spinoffs still have appeal

Shares of these two firms have drifted lower since their spinoffs. We still like their long-term prospects, but Edgewell is the better choice for your new buying.
HENRY SCHEIN INC. $74 is a hold. The company (Nasdaq symbol HSIC; Manufacturing & Industry sector; Shares outstanding: 136.1 million; Market… Read More

Elliott’s attention should lift Match

MATCH GROUP INC. $36 is a hold. This company (Nasdaq symbol MTCH; Consumer Sector; Shares outstanding: 268.9 million; Market cap: $9.7 billion; No dividend paid; Takeover Target Rating: Medium; www.mtch.com) owns dating websites Tinder, Match, Hinge and OK-Cupid. It has 15.2 million paying subscribers (with about half outside North… Read More

Keep holding these three targets

The shares of these three stocks (including Match Group—see box) are down sharply in the past few years. That has attracted the attention of activist investors, who believe there are ways to boost those prices. However, we see better opportunities elsewhere.
ETSY INC. $76 is a.. Read More

We prefer the outlook for J&J

Medical products giant Johnson & Johnson first sold shares in its consumer drug business, Kenvue, to the public in May 2023 at $22.00 a share. Johnson & Johnson later let its own shareholders exchange JNJ shares for Kenvue shares at a 7% discount. The company… Read More

Spinoff spotlight: VF Corp.

VF CORP. $17 is still a buy, but only for aggressive investors. The company (New York symbol VFC; Consumer sector; Shares outstanding: 388.8 million; Market cap: $6.6 billion; Dividend yield: 2.1%; Takeover Target Rating: Medium; www.vfc.com) is one of the world’s largest apparel suppliers and a leader in the… Read More

Spinoff should take Baxter higher

Shares of medical device maker Baxter have dropped 7% in the past six months. The decline reflects investor fears that new GLP-1 diabetes drugs, such as Ozempic, will hurt demand for Baxter’s kidney dialysis equipment (diabetes contributes to kidney disease). However, the new drugs are… Read More