We prefer the parents to their spinoffs

Article Excerpt

Spinoff activity continues to accelerate as the stock market moves on from its COVID-19 shock last year. We continue to see spinoffs as full of opportunity, but for now prefer the three parent firms below to their spinoffs. MERCK & CO. INC., $77 is a spinoff buy. The stock (New York symbol MRK; Consumer sector; Shares outstanding: 2.5 billion; Market cap: $192.5 billion; Dividend yield: 3.4%; Takeover Target Rating: Medium; www.merck.com) lets you tap one of the world’s largest pharmaceutical companies. On June 3, 2021, Merck completed the spinoff its Women’s Health business, biosimilars (cheaper copies of complex biologic drugs) and its older legacy brands as one firm. Investors received one share in the new firm—called Organon & Co. (New York symbol OGN)—for every 10 MRK shares they held. As part of the transaction, Organon paid Merck a special dividend of $9 billion. That cash will help the former parent expand its faster-growing businesses: oncology, vaccines, hospital/specialty care and animal health. The proceeds will…

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