spinoffs

BAXTER INTERNATIONAL INC. $72 (New York symbol BAX; Conservative Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 540.9 million; Market cap: $38.9 billion; Price-to-sales ratio: 2.6; Dividend yield: 2.7%; TSINetwork Rating: Average; www.baxter.com) is the latest of our recommendations to announce a spinoff. (We analyze three other recent spinoffs in this issue.)

Baxter plans to split into two separate companies. One will focus on medical devices, such as intravenous pumps and kidney-dialysis equipment. This business provides 60% of Baxter’s total revenue. The other firm will make biopharmaceuticals, including vaccines and hemophilia drugs.

In mid-2015, Baxter will hand out shares in the biopharmaceutical company to its shareholders as a tax-deferred dividend.

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PLEASE NOTE: Due to the Good Friday holiday, our next Hotline will go out on Thursday, April 17, 2014. BANK OF NOVA SCOTIA, $64.24, Toronto symbol BNS, has formally changed the name of its ING Direct subsidiary to Tangerine (www.tangerine.ca). The bank bought ING Direct from its Netherlands-based parent, ING Group, in November 2012. This business provides no-fee banking services to 1.9 million clients, mainly over the Internet. The new name will let Bank of Nova Scotia keep using the orange colour associated with the ING Direct brand....

From time to time, companies set up one or more of their divisions or subsidiaries as an independent firm, then hand out shares in that company to their own investors as a special dividend, or “spinoff.” You can contrast a spinoff with a new stock issue. That’s when a company (often a newly created or junior company) issues new stock to sell to the public. The two situations are like two sides of a coin—one favourable to investors, the other unfavourable. The motivations of the companies are nearly opposite. Companies sell new issues to the public when they feel it’s a good time to sell. That may be, and often isn’t, a good time for you to buy. In addition, the underwriting brokerage firms try to spark publicity about the new issue, and they pay extra commission (as much as double the regular rates) to spur their salespeople to sell the new issue to their clients. This tends to create a high-water mark in the price of the new issue. Unless the new company can follow up with business success, the price of the new issue may languish for months or years....

Heavy equipment distributor Toromont Industries Ltd. completed the spinoff of its natural gas equipment division, Enerflex Ltd., in July 2011. Shareholders received shares of the new Toromont and shares of Enerflex. Here is our latest report on these two Canadian stocks which we follow in our advisory for more aggressive investing, Stock Pickers Digest....

Heavy equipment distributor Toromont Industries Ltd. completed the spinoff of its natural gas equipment division, Enerflex Ltd., in July 2011. Shareholders received shares of the new Toromont and shares of Enerflex. Here is our latest report on these two Canadian stocks which we follow in our advisory for more aggressive investing, Stock Pickers Digest....

Like Kraft (see page 111), Sara Lee Corp. recently split into two separate companies: U.S.-based Hillshire Brands and Holland-based D.E. Master Blenders. Both stocks have stayed in a narrow range sincethe split in June 2012. That’s partly because investors often dump new shares they didn’t want. As well, few brokers cover these new companies. However, spinoffs tend to pay off for patient investors. Their smaller size could also make theses two new companies attractive takeover targets....

From time to time, companies set up one or more of their divisions or subsidiaries as an independent company, then hand out shares in that company to their own shareholders, as a special dividend or “spinoff”. Many investors seem to view spinoffs as a nuisance, because they leave you with a tiny holding in a stock you didn’t choose and that you know little about. They may dump them as soon as they get a chance. On the other hand, a number of studies have shown that after an initial adjustment period of a few months, spinoffs tend to outperform groups of comparable stocks for several years....

From time to time, companies set up one or more of their divisions or subsidiaries as an independent company, then hand out shares in that company to their own shareholders, as a special dividend or “spinoff”.

Many investors seem to view spinoffs as a nuisance, because they leave you with a tiny holding in a stock you didn’t choose and that you know little about....

We’ve often pointed out that spinoffs are a great way for companies to unlock value. Here are two spinoffs, one old (Agilent) and one new (Motorola Solutions), that we see as buys for long-term gains. MOTOROLA SOLUTIONS INC. $50 (New York symbol MSI; Conservative Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 325.5 million; Market cap: $16.3 billion; Price-to-sales ratio: 1.9; Dividend yield: 1.8%; TSINetwork Rating: Average; www.motorolasolutions.com) took its current form on January 4, 2011, following the breakup of the old Motorola Inc. The company makes specialized equipment, including bar-code scanners and radios for emergency vehicles. Governments supply 65% of its revenue; the remaining 35% comes from businesses. In 2011, Motorola Solutions earned $888 million, or $2.61 a share. That’s up 42.5% from $623 million, or $1.84 a share, in 2010. These figures exclude several unusual items, mainly costs related to the spinoff from Motorola Inc. Sales rose 7.7%, to $8.2 billion from $7.6 billion....

East Asia Minerals, $1.33, symbol EAS on Toronto (Shares outstanding: 77.5 million; Market cap: $125.7 million; www.eastasiaminerals.com), holds gold and copper exploration properties in Indonesia, and uranium exploration properties in Mongolia. In Indonesia, the company has a 70% to 85% interest in three gold and gold/copper properties in Aceh Province, Sumatra, and Sangihe Island, North Sulawesi. In Mongolia, East Asia Minerals owns seven uranium properties, including the Ingiin-Nars, Ulaan Nuur and Enger uranium projects, as well as two phosphate properties. The company recently handed out shares of Barisan Gold Corp. to its shareholders. It also plans to hand out shares of two more spinoffs, the Sangihe Gold Corp. and East Asia Energy Corp. However, the Indonesian and Mongolian governments must authorize the transfer of these assets before the spinoffs can proceed....