THOMSON REUTERS CORP. $104 is a buy. The company (Toronto symbol TRI; Consumer sector; Shares o/s: 495.3 million; Market cap: $51.5 billion; Dividend yield: 1.9%; Takeover Target Rating: Lowest; www.thomsonreuters.com) sold 55% of its Financial & Risk business (now called Refinitiv) to a consortium led by Blackstone Group LP (New… Read More
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.
Spinoffs Library Archives
HONEYWELL INTERNATIONAL INC. $202 is a buy. The company (New York symbol HON; Manufacturing & Industry sector; Shares outstanding: 701.7 million; Market cap: $141.7 billion; Dividend yield: 1.8%; Takeover Target Rating: Medium; www.honeywell.com) is a diversified technology firm operating in four segments: Aerospace (38% of sales); Performance Materials (30%);… Read More
DELL TECHNOLOGIES INC. $79 is a hold. The company (Nasdaq symbol DELL; Manufacturing sector; Shares outstanding: 749.8 million; Market cap: $59.2 billion; No dividend paid; Takeover Target Rating: Lowest; www.delltechnologies.com) still plans to spin off its 80.1% stake in VMWARE INC. $141. It is also a hold. VMWare (New York symbol VMW;… Read More
Dutch electronics giant Philips started up in 1891 as a maker of light bulbs and radios. Over the following decades, it has added a wide variety of other consumer products, including television sets, kitchen appliances and personal grooming products.
Philips is now preparing to sell or… Read More
These two stocks are up sharply in the past year, thanks largely to the completion (or announcement) of spinoffs. However, we feel Raytheon is in a stronger position to keep rising as the economy recovers from the pandemic.
RAYTHEON TECHNOLOGIES CORP. $73 is a buy. The company (New… Read More
EXXON MOBIL CORP. $53 is a hold. The oil giant (New York symbol XOM; Resources sector; Shares outstanding: 4.2 billion; Market cap: $222.6 billion; Dividend yield: 6.9%; Takeover Target Rating: Lowest; www.exxonmobil.com) has come under fire from two activist firms—D.E. Shaw Group and Engine No. 1.
Exxon’s shares are down… Read More
Many companies prefer to first sell shares in a subsidiary to the public before handing out their remaining shares in the new firm to their existing shareholders. This process—called a carveout—gives the new company a chance to build up a following with analysts and investors… Read More
Activist investors have an uneven 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 Corteva and Ovintiv, we feel the participation of activists will ultimately pay… 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.
The COVID-19 pandemic hurt the share price for… Read More
The COVID-19 shutdowns have hurt demand for copier paper as office workers remain home. That has prompted International Paper to spin off these operations so it can better focus on its faster-growing cardboard packaging business. Despite slowing demand for office paper, that business could become… Read More
ACI WORLDWIDE INC. $39 is a buy. The company (Nasdaq symbol ACIW; Manufacturing & Industry Sector; Shares outstanding: 116.8 million; Market cap: $4.6 billion; No dividend paid; Takeover Target Rating: Medium; www.aciworldwide.com) is the leading software provider for processing transactions by credit cards, debit cards, automated teller machines, point-of-sale… Read More
HOME DEPOT INC. $274 is a hold. The retailer (New York symbol HD; Consumer Sector; Shares outstanding: 1.1 billion; Market cap: $301.4 billion; Dividend yield: 2.2%; Takeover Target Rating: Medium; www.homedepot.com) operates 2,295 warehouse-style home-improvement stores, mainly in the U.S., Canada and Mexico.
The company has now re-acquired HD Supply… Read More
FIREEYE INC. $22 is a buy for aggressive investors. The company (Nasdaq symbol FEYE, Manufacturing & Industry sector; Shares outstanding: 227.7 million; Market cap: $5.0 billion; No dividend paid; Takeover Target Rating: Medium; www.fireeye.com) is a cybersecurity software firm that aims to provide businesses and governments worldwide with real-time… Read More
Spinoff announcements have started to pick up as stock markets continue to recover from the March 2020 COVID-19 downturn. Here are two upcoming spinoffs that we expect will unlock value and fuel your returns.
IAC/INTERACTIVE CORP. $205 is a buy. The Internet and media company (Nasdaq symbol IAC;… Read More
LAMB WESTON HOLDINGS INC. $77 remains a spinoff buy. The company (New York symbol LW; Consumer sector; Shares o/s: 146.0 million; Market cap: $11.2 billion; Takeover Target Rating: Highest; Dividend yield: 1.2%; www.lambweston.com) produces frozen potatoes and other vegetable products for restaurants and prepared-food makers.
Until November 9, 2016, it was… Read More
Computer chip giant Intel has struggled lately as manufacturing problems have forced it to delay the launch of its next-generation chips. Investors fear that gives its competitors a big advantage. As a result, activist investor Daniel Loeb now wants Intel to consider selling or spinning… Read More
Expanding by acquisition is always riskier than growth from existing operations. Still, here are two companies that we feel will benefit from their latest purchases.
DYE & DURHAM LTD. $43 is a buy. The company (Toronto symbol DND, Manufacturing & Industry sector; Shares outstanding: 46.7 million; Market cap:… Read More
DANAHER CORP. $237 is a buy. The company (New York symbol DHR; Manufacturing & Industry sector; Shares outstanding 707.2 million; Market cap: $167.6 billion; Dividend yield: 0.3%; Takeover Target Rating: Medium; www.danaher.com) is a leading maker of precision-testing equipment and tools. Its major customers include medical research labs and… Read More
For 2021, we’ve chosen IBM as your #1 Spinoff Buy.
The company’s shares have lagged other big tech stocks in the past year. That’s mainly due to concerns that IBM’s older, slower-growing legacy businesses were holding back its faster-growing cloud computing operations. The upcoming spinoff will… Read More
B&G FOODS INC. $29 is a hold. The company (New York symbol BGS; Consumer sector; Shares outstanding: 64.3 million; Market cap: $1.9 billion; Dividend yield: 6.5%; Takeover Target Rating: Highest; www.bgfoods.com) makes prepackaged food and household products in the U.S. and Canada. Its more than 50 brands include Cream… Read More
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