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.
• Invest mainly in well-established, high-quality companies.
• Spread your money out across most if not all of the five main economic sectors: Manufacturing & Industry; Resources & Commodities; Consumer; Finance; and Utilities.
• Downplay or avoid stocks in the broker/media limelight. Stocks in the limelight instill bloated expectations in investors.
Both stocks have soared since the split—Western Digital is up over 900% while Sandisk has jumped a whopping 3,860%. Those gains reflect strong demand from the builders of new artificial intelligence (AI) datacentres.
We still like the outlook for both companies, but they are vulnerable to a sharp setback if the pace of datacentre construction slows. The ongoing uncertainty over U.S. tariffs on components imported from China and other parts of Asia also increase the risk for investors.
On April 29, 2026, Pershing Square USA completed an initial public offering of 56.3 million shares at $50.00 a share. The company also gave investors one share in a separate firm, asset fund manager Pershing Square Inc. $47 (New York symbol PS), for every five PSUS shares they held.
The company is now strengthening its internal controls. However, the stock will remain depressed until the SEC concludes its investigation.
Kyndryl took its current form in November 2021 when International Business Machines Corp. (New York symbol IBM) spun off its legacy business focused on helping corporate and government clients manage their datacentres. Investors received one Kyndryl share for every five IBM shares they held.
The company also recently settled a licensing dispute with rival chemical maker Bayer. That further improves Corteva’s prospects and sets up shareholders for even better long-term gains.
GameStop felt its 1,600 retail stores and its focus on collectibles, such as trading cards, would help online marketplace provider eBay with its own authentication and fulfillment processes. A reduction in marketing, product development and administrative costs could also have cut $2 billion from the combined company’s annual costs in the first year.
Still, it’s unclear how GameStop, with a market cap of $9.9 billion, would finance the purchase of eBay—roughly five times its size.
The breakup is a good example of how spinoffs can deliver big returns for investors. Note, with the split, Yum Brands investors received one share in the new firm for each YUM share they held.
We continue to like the outlook for both companies as Yum Brands weighs several options for its Pizza Hut business, including a possible sale or spinoff. It’s also using artificial intelligence to improve overall efficiency.
Meantime, Yum China continues to open new stores, particularly in China’s smaller cities where there are few fast-food chains. You can expect that to drive growth for many years to come.