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

Great fit for Kirkland, and investors

KIRKLAND LAKE GOLD $55 is a buy. The stock (Toronto symbol KL; Resources sector; Shares outstanding: 210.2 million; Market cap: $11.6 billion; Dividend yield: 0.6%; Takeover Target Rating: Low; www.cvshealth.com) exposes you to two main mines—the Macassa mine in Northern Ontario and the Fosterville mine in Australia. The company… Read More

Your updates include a coming takeover

KAR AUCTION SERVICES INC. $22 is still a buy for aggressive investors. The company (New York symbol KAR; Manufacturing & Industry sector; Shares outstanding: 133.4 million; Market cap: $2.9 billion; Dividend yield: 3.5%; Takeover Target Rating: Medium; www.karauctionservices.com) sells used vehicles at 250 physical auction sites in North America… Read More

Their spinoffs would spur your gains

Overall, as we’ve said many times before times, we think that spinoffs are the closest thing you can find to a sure thing. The two stocks we look at on the page 1 of this month’s issue, Agilent and Keysight, are great examples of this… Read More

CVS could be your next eBay

CVS HEALTH CORP. $73 is okay to hold. Through the stock (New York symbol CVS; Consumer sector; Shares outstanding: 1.3 billion; Market cap: $94.9 billion; Divd. yield: 2.7%; Takeover Target Rating: Low; www.cvshealth.com), you gain exposure to over 9,900 drugstores in the U.S.
CVS’s shares have gained just 2% in… Read More

Activists see extra value in these stocks

Shareholders tend to respond favourably to news that an activist investor is now targeting a stock they own. And we think they should. That’s because those activists generally do a good job of spotting opportunities to push a company to unlock hidden value for all… Read More

We see better spinoffs out there for you

Investors in this U.S. gunmaker have seen their shares plummet 70% in the past three years. That’s partly because gun sales tend to increase when owners expect higher regulations, but the pro-gun policies of the Trump administration have dampened those fears.
As well, mass shootings have… Read More

Takeover Spotlight: Cineplex Inc.

Welcome to your latest issue of Spinoffs & Takeovers! This month, we highlight spinoff opportunities ready to deliver strong returns for your portfolio. They include Keysight, and eBay and Aramark, among several others.
In addition, we provide you with key analysis of stocks now in the crosshairs… Read More

You can’t argue with this 95% gainer

It’s been a key part of our message on the value of spinoffs, and we never tire of repeating it for you: According to several academic studies, spinoffs benefit not only the new company but the former parent as well.
A good example is Agilent, a.. Read More

Investors need to look beyond IPOs

As we’ve often written, the odds are skewed against you when you enter the market for certain kinds of investments.
One of these is the new-issues, or IPO (Initial Public Offering), market. You can get lucky in the new-issues market, just as you can in the… Read More

You should buy Emerson before spinoff

Big investors like pension funds tend to prefer pure-play companies with simple-to-understand businesses. As a result, firms with more diverse operations tend to attract activist investors who pressure them to spin off some of their businesses as a way of boosting value for investors.
Emerson Electric… Read More

Most activists are on your side

Activist investing has surged in the past decade, led by a relatively small but powerful group of hedge funds. They follow different activist investing strategies, but all have the same goal: wringing the greatest possible profits from the company’s assets.
This can include forcing a change… Read More

Activists aim to unlock investor value

Under pressure from activist investors, these two companies are taking big steps to boost their value for all investors. We feel now is a particularly good time for you to buy.
MARATHON PETROLEUM CORP., $61.80, is a spinoff buy. The stock (New York symbol MPC; Resources sector; Shares… Read More

This move undercuts investor gains

OCCIDENTAL PETROLEUM CORP., $38.48, is okay for aggressive investors to hold. The company (New York symbol OXY; Resources sector; Shares o/s: 893.3 million; Market cap: $34.4 billion; Divd. yield: 8.3%; Takeover Target Rating: Medium; www.oxy.com) paid $35.7 billion (81% cash, 19% stock) for oil producer Anadarko in August 2019.
Billionaire… Read More

Edgewell still has strong investor appeal

In July 2015, Energizer Holdings split into personal-care products maker Edgewell and battery-manufacturer Energizer—a move that elevated them to pure-play leaders in their markets. It also enhanced investor prospects.
We feel Edgewell’s recent deal to buy online razor company Harry’s will further pay off for investors… Read More

The issue benefits you

Welcome to your latest issue of Spinoffs, Takeovers and Special Situations! This month, we update spinoff opportunities poised to deliver strong, long-term returns for investors. They include Trisura (left), Edgewell and Marathon Petroleum.
In addition, we provide you with key analysis of stocks now in the crosshairs… Read More

Let Trisura fuel your future gains

We often remind investors that patience is a key part of the Successful Investor approach to spinoff gains. Many new companies will move sideways for their first few years until they build up a history of revenue and earnings, and attract the attention of brokers.

A… Read More