spin off

AMERIPRISE FINANCIAL INC. $44 (New York symbol AMP; Conservative Growth Portfolio, Finance sector; WSSF Rating: Average) provides financial planning, brokerage and insurance services to over 2.7 million clients through a network of roughly 12,370 advisors. It currently owns, administers or manages assets worth $428 billion. The company was a wholly owned subsidiary of American Express Co. (see page 75) prior to September 2005. That’s when American Express handed out all of its Ameriprise shares to its own stockholders as a special tax-deferred dividend. In the three months ended June 30, 2006, the company earned $0.57 a share from continuing operations, down 6.6% from $0.61 a year earlier. If you disregard costs related to the spin-off and other unusual items, per-share income grew 21.5%, to $0.79 from $0.65. Revenue rose 13.9%, to $2.05 billion from $1.8 billion....

Uncertainty over interest rates, oil prices and the Mideast situation has hurt world equity markets in the past few months. However, we feel that this is a temporary setback, and not the start of a protracted bear market. These three investment firms earn much of their income based on the value of the securities they manage. Consequently, the recent downturn has hurt their short-term earnings growth and stock prices. Our view is that their earnings will probably rebound with the markets, particularly as we get closer to the two-year period before the next Presidential election. In the meantime, we see them as worthwhile holds....

CANADIAN UTILITIES LTD. $37 (Toronto symbol CU (old symbol CU.NV); Income Portfolio, Utilities sector; SI Rating: Above average) is one of Alberta’s leading suppliers of natural gas (940,000 customers) and electricity (211,000 customers). It also operates power plants in other parts of Canada, Australia, and the UK, and provides engineering and related services to other gas and power companies. The company is slowly shifting its focus to its regulated businesses, which supply about half of its revenue and income. While that limits its growth prospects, it greatly cuts its risk and helps provide it with more predictable cash flows.

Canadian Utilities still on a diet

Two years ago, Canadian Utilities sold its retail gas and electric operations. Deregulation opened up this market to competition, and the company decided it would rather focus on its wholesale business....

BCE INC. $26.07 (Toronto symbol BCE; SI Rating: Above-Average) completed its plan of arrangement with ALIANT INC. on July 7, 2006, with an effective date of July 10. BCE shareholders received 0.0725 trust units of BELL ALIANT REGIONAL COMMUNICATIONS INCOME FUND (Toronto symbol BA.UN: SI Rating: Extra risk) for each share they owned. They also received 0.915 of a new BCE common share for each old share. Aliant shareholders received one trust unit for each common share they held. If you hold your BCE shares in certificate form and not in a brokerage account, you’ll need to complete and return the forms the company sent to you....

PHILIPS ELECTRONICS N.V. $29 (New York symbol PHG; Conservative Growth Portfolio, Manufacturing & Industry sector; WSSF Rating: Average) plans to spin off its chip division as a separate company by the end of 2006. Philips will probably sell stock to the public through an initial offering. Philips will retain a minority interest in the new company, but will likely sell its shares over the next few years. The chip division supplies about 15% of Philips’ total revenue. But it’s less profitable than its core medical systems, appliances and lighting businesses. It also requires large investments in new equipment to stay competitive....

BCE INC. $26.55 (Toronto symbol BCE; SI Rating: Above-Average) is reorganizing its businesses to unlock shareholder value. The company will combine its traditional telephone operations in rural areas of Ontario and Quebec with those of 53.2%-owned ALIANT INC. $35.30 (Toronto symbol AIT; SI Rating: Above average) into a new income trust called Bell Aliant Regional Communications Income Fund. BCE will assume control over Aliant’s wireless and other operations. BCE shareholders will receive 0.0725 trust units for each share they own. They will also receive 0.915 of a new BCE common share for each old share. Aliant shareholders will receive one trust unit for each common share they hold....

BCE INC. $27 (Toronto symbol BCE; Conservative Growth Portfolio, Utilities sector; SI Rating: Above average) is reorganizing its businesses to unlock some of its value. The biggest part of this plan will combine Bell Canada’s traditional telephone operations in rural areas of Ontario and Quebec with those of 53.2%-owned ALIANT INC. $37 (Toronto symbol AIT; Conservative Growth Portfolio, Utilities sector; SI Rating: Above average) into a new income trust called Bell Aliant Regional Communications Income Fund. BCE will assume control over Aliant’s wireless and other operations. BCE shareholders will receive 0.0725 trust units for each common share they own. Consequently, BCE will own 45% of the new trust and run it, and BCE shareholders will hold 28.5%. Aliant shareholders will receive one trust unit for each common share they hold. As a group they will own 26.5% of the new trust....

UNISYS CORP. $6 (New York symbol UIS; WSSF Rating: Average) cut its losses in the three months ended March 31, 2006, to $0.08 a share (total $27.9 million) from $0.13 a share ($45.5 million) a year earlier, due to gains on the sale of assets and savings from a restructuring plan. Revenue crept up to $1.39 billion from $1.37 billion. Sales growth will probably remain weak until Unisys launches new server computers in the second half of 2006. The company aims to cut its annual costs by $250 million by the end of 2007, but restructuring charges will depress its earnings. Unisys is a sell....

WENDY’S INTERNATIONAL, INC. $62 (New York symbol WEN; WSSF Rating: Above average) is the third-largest hamburger chain in the world, behind McDonald’s and Burger King. In 1995, it acquired coffee and donut chain TIM HORTONS INC. $27 (New York symbol THI; WSSF Rating: Extra risk). Tim Hortons is Canada’s largest fast-food chain, with 2,597 outlets. This includes 681 smaller restaurants in non-traditional locations such as gas station convenience stores, universities, hospitals and office buildings. Tim Hortons now has about 23% of the Canadian fast-food market (compared to 18% for McDonald’s). It also has 76% of the coffee and baked goods segment. It plans to expand by at least 1,000 new locations in the next few years....

Here are two general rules that have paid off again and again over the years: First, new stock issues tend to produce below-average results for investors; second, spin-offs tend to produce above-average results. This is due to human nature. New issues come to market when it’s a good time for the company or its insiders to sell. That’s not likely to be a good time for you to buy, regardless of any mitigating factors. The reverse is true of spin-offs (when a company sets up a division as a separate entity and hands out stock in it to its own investors). Companies create spin-offs when they are likely to pay off for their own investors....