spinoffs
A spinoff takes place when a company decides to get rid of a portion of its asset base, possibly because it wants to focus its activities elsewhere, but is unable to sell the assets for a price that it feels reflects their value. Instead, the parent company sets the assets up as a separate company, then hands out shares in that publicly listed firm to its current investors.
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BLOOMIN’ BRANDS INC. $23 is worth holding given the likelihood of a lucrative takeover bid. The company (Nasdaq symbol BLMN; Consumer Sector; Shares outstanding: 86.9 million; Market cap: $2.0 billion; Dividend yield 3.6%; Takeover Target Rating: Highest; www.bloominbrands.com) owns and franchises more than 1,470 restaurants in 48 states and 21 countries....
Drug wholesaler McKesson fell from its high of $241 in May 2015 to $108 in December 2018. That’s partly due to its role in the opioid crisis. However, the company has now settled many of those lawsuits, reducing risk for investors. It’s also improving the profitability of its main businesses, and its plan to let investors acquire shares in its Change Healthcare subsidiary should further boost your returns.
MCKESSON CORP....
Spinoffs are often seen as an effective way for a holding company to eliminate its “holding company discount.” That discount is usually evident in the stock price of a company that holds a variety of assets, or that invests in a number of businesses.
As well, investors tend to prefer so-called “pure play” companies—firms that focus on a single business area....
These two global leaders continue to shrink their operations. That’s good news for investors, as markets tend to prefer—and reward—companies with easy-to-understand businesses rather than those with complex conglomerate structures (see box below for more info).
UNILEVER PLC (ADR) $60 is a buy for aggressive investors. The company (New York symbol UL; Consumer sector; Shares outstanding: 2.6 billion; Market cap: $156.0 billion; Dividend yield: 3.1%; Takeover Target Rating: Lowest; www.unilever.com) is one of the world’s largest makers of branded and packaged consumer goods.
Unilever is now conducting a strategic review of its tea business to add investor value....
DAVE & BUSTER’S ENTERTAINMENT INC. $46 is okay to hold. The stock (Nasdaq symbol PLAY; Consumer sector; Shares outstanding: 38.6 million; Market cap: $1.8 billion; Dividend yield: 1.4%; Takeover Target Rating: Highest; www.daveandbusters.com) gives you a stake in 135 entertainment and dining venues in the U.S....
Generally, investors are right to welcome share buyback plans, which help to give them a bigger stake in the company, but also tend to push up the price of their shares.
However, depending on the company, there are better ways to reward shareholders....
Shipping specialist XPO Logistics has handed investors a whopping 77% gain in the past 12 months. It’s now looking to sell or spin off some of its businesses to further spur your returns. A tighter focus on its core operations would help unlock value for its investors and could also make the remaining firm an attractive takeover target....
As we often remind our readers, spinoffs are the closest you can get to a sure thing in investing. According to several academic studies, spinoffs benefit not only the new company but the former parent as well.
We also caution investors that these benefits don’t arrive immediately....
In August 2018, we alerted our readers to a plan by clothing giant VF Corp. to set up its Wrangler and Lee jeanswear business as a separate company (called Kontoor Brands, see page 18). The move freed both the parent and the spinoff to better focus on their core businesses....
Most experienced investors understand the idea that “A rising stock market climbs a wall of worry”, because they’ve seen it happen many times. Worrisome news items and developments come along in an irregular pattern. Many are serious enough to raise worries about how they will impact the stock market....