‘Pure-play’ spinoff benefits investors

Article Excerpt

A key reason for corporate spinoffs is they create companies that focus on a single business. Investors prefer these “pure-play” firms as they are easier to evaluate as potential takeover targets. A good example is the former Fortune Brands holding company, which spun off Fortune Brands Home & Security in October 2011. Investors received one share of the new firm—with successful brands such as Moen and Master Lock—for each share they held. The former parent then changed its name to Beam Inc. as it became a pure-play spirits business. (Jim Beam was one of its brands.) Beam Inc. later accepted a takeover offer in April 2014, which represented a 25% premium on the pre-takeover share price. Spinoff Fortune Brands Home & Security has gained over 400% since its independence in 2011 and is now planning its own spinoff: it will set up its cabinets business as a separate firm. That move should unlock even more value for investors, and potentially create two new…

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