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.
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Why we like spinoffs so much
We think that spinoffs are the closest thing you can find to a sure thing for two main reasons:
1) The management of a parent company will only hand out shares in a subsidiary to its own investors if it’s all but certain that business, and the parent, will be better off after the spinoff.
The shares of this Canadian-based maker of generic drugs have since jumped 54%. They now trade at 18.7 times Apotex’s projected 2026 earnings of $1.98 a share. That’s a reasonable multiple considering the company’s high market share—it accounts for one in every five generic drug prescriptions in Canada.
Rogers has now agreed to acquire the remaining 25% of Maple Leaf Sports & Entertainment (MLSE) for $4.35 billion.
Big acquisitions like this add risk, which is why the stock dropped 15% on the news.
That gain is largely because the August 2023 spinoff of its consumer drug business as Kenvue Inc. (New York symbol KVUE) left it to focus on its more-profitable pharmaceutical drugs.
Johnson & Johnson now plans to spin off its orthopaedics business as a new firm called DuPuy Synthes in 2027. We feel that will spur the stock even higher over the next few years.
The first spinoff came on October 30, 2025, when Honeywell set up its specialty chemical business as Solstice Advanced Materials (see box). Honeywell investors received one share of Solstice common stock for every four shares they held.
Peller’s shares now trade just under the takeover offer. That indicates investors feel a higher bid is unlikely.
GFL ENVIRONMENTAL INC. $55 is a hold. The company (Toronto symbol GFL; Manufacturing sector; Shares outstanding: 349.2 million; Market cap: $19.2 billion; Dividend yield: 0.2%; Takeover Target Rating: Medium; www.gflenv.com) is North America’s fourth-largest waste management firm.
Comcast now plans to split its remaining businesses into two separate companies. One will focus on high-speed Internet services, and the other (NBCUniversal) will hold its entertainment businesses, including the NBC TV network, movie studios and theme parks.