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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YUM! BRANDS INC., $72.89, New York symbol YUM, plans to spin off its operations in China as a separate firm. The company will hand out shares in Yum China to its own investors, who will not be liable for capital gains taxes until they sell. The company aims to complete the spinoff by the end of 2016. Yum China will operate 6,900 fast-food outlets under the KFC, Pizza Hut and Taco Bell banners. In the three months ended September 5, 2015, this division supplied 57% of Yum’s overall sales....
Its niche in medical equipment testing has made Agilent Technologies one of our top U.S. growth stocks before and after its big spinoff.
Spinoffs are a great way for companies to unlock hidden value, as the former parent and newly independent firm tend to outperform groups of comparable stocks for several years. But in the cases of Agilent and NCR, we prefer the parent companies to their former subsidiaries for new buying. AGILENT TECHNOLOGIES INC. $36 (New York symbol A; Aggressive Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 332.0 million; Market cap: $12.0 billion; Price-to-sales ratio: 1.6; Dividend yield: 1.1%; TSINetwork Rating: Average; www.agilent.com) split into two publicly traded firms on November 1, 2014. One company kept the Agilent name and stock symbol and focuses on testing equipment for medical research labs. The other firm, called Keysight Technologies (see right), makes testing systems for electronics....
This is the third in our regular series of Spinoff Stock Investigator reports. It’s been a busy year for spinoff news from our stock recommendations: Hewlett-Packard expects to complete spinoffs by the end of 2015; Symantec and United Technologies have decided to accept big purchase offers for some of their businesses instead of spinning them off; and FirstService, eBay, Gannett, BHP Billiton and Baxter International have all completed their spinoffs. We hope you will continue to enjoy and profit from our Spinoff Stock Investigator....
You can find a lesson about acquisitions in our latest edition of Wall Street Stock Forecaster, which we sent out last week.
Investors often under-estimate the hidden risk of a corporate strategy of growth-by-acquisition. This strategy is inherently risky. It’s a little like buying new stock issues.
Acquisitions generally come on the market when it’s a good time to sell. That may not be, and often isn’t, a good time to buy. Insiders and managers at the selling company know a lot more than the buyers about the company itself, and its business strengths and weaknesses.
Some takeovers work out well for the buyers, of course. This doesn’t diminish the inherent risk. More important, risk multiplies as takeovers become a habit.
Takeovers are more likely to succeed when the buyer is already a successful company and is under no pressure to buy anything. That way, the buyer can take its time and wait for a truly attractive, low-risk opportunity to come along.
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Investors often under-estimate the hidden risk of a corporate strategy of growth-by-acquisition. This strategy is inherently risky. It’s a little like buying new stock issues.
Acquisitions generally come on the market when it’s a good time to sell. That may not be, and often isn’t, a good time to buy. Insiders and managers at the selling company know a lot more than the buyers about the company itself, and its business strengths and weaknesses.
Some takeovers work out well for the buyers, of course. This doesn’t diminish the inherent risk. More important, risk multiplies as takeovers become a habit.
Takeovers are more likely to succeed when the buyer is already a successful company and is under no pressure to buy anything. That way, the buyer can take its time and wait for a truly attractive, low-risk opportunity to come along.
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Three of our long-time recommendations recently spun off a subsidiary as separate firm. This is a great way to unlock hidden value, as studies have shown that after an initial adjustment period of a few months, spinoffs tend to outperform groups of comparable stocks for several years. Needless to say, things don’t always work out this well. Spinoffs and their parents do sometimes run into unforeseeable woes, which is why we don’t see all of these stocks as buys right now. EBAY INC. $29 (Nasdaq symbol EBAY; Aggressive Growth Portfolio, Finance sector; Shares outstanding: 1.2 billion; Market cap: $34.8 billion; Priceto- sales ratio: 1.9; No dividends paid; TSINetwork Rating: Above Average; www.ebay.com) launched its online auction site in September 1995 and now has 157 million users worldwide. Sellers pay fees to list and sell their goods through eBay’s websites....
NEWMONT MINING CORP., $23.55, New York symbol NEM, is buying the Cripple Creek & Victor gold mine in Colorado from AngloGold Ashanti (New York symbol AU). The company will pay $820 million, which is equal to 7% of its $11.8-billion market cap (or the value of all outstanding shares). Newmont expects to complete the purchase in the third quarter of 2015. Cripple Creek will produce 350,000 to 400,000 ounces of gold a year once it completes its current expansion in 2016. To put that in context, Newmont expects to produce 4.6 million to 4.9 million ounces in 2015. The mine should last until at least 2026....
NORDSTROM INC., $72.64, New York symbol JWN, has formed an alliance with Toronto-Dominion Bank (Toronto symbol TD), a recommendation of The Successful Investor, our newsletter that focuses on conservative Canadian stocks. Under the deal, TD will purchase Nordstrom’s credit card loans, which total $2.2 billion. To put that in perspective, Nordstrom’s market cap (or the value of all of its outstanding shares) is $14.0 billion. Nordstrom will still get part of the revenue from these credit cards and will keep managing their related loyalty plans. The companies expect to complete the deal in the second half of 2015. Separately, TD has agreed to become the exclusive issuer of Nordstrom-branded Visa and private-label credit cards....
Hi, Pat: I’m considering adding Air Products to my RRSP. What do you think about this stock? Thanks.
Air Products & Chemicals Inc., $147.51, symbol APD on New York (Shares outstanding: 214.3 million; Market cap: $31.8 billion; www.airproducts.com), sells gases extracted from the atmosphere (oxygen, nitrogen) and other sources (hydrogen, helium) to clients including oil and gas exploration firms, industrial-equipment manufacturers, electronics makers and health care companies. It also provides products and services for designing, building and operating liquefied natural gas (LNG) plants. In its fiscal 2015 second quarter, which ended March 31, 2015, the company’s revenue fell 6.5%, to $2.41 billion from $2.58 billion. Air Products gets about 60% of its sales from outside of the U.S., and the strong U.S. dollar offset price increases and higher sales volumes....