Spinoffs

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.

See how you can make the most of these special investment opportunities by reading our special free report Spinoff Stock Investigator: All You Need to Know about Reaping the Rewards of Spinoffs.

Read More Close
Spinoffs Library Archives
Diversified manufacturing firm 3M completed its plan to spin off its Health Care division as independent firm Solventum on April 1, 2024. Shareholders received one share of Solventum for every four 3M shares they held. 3M still owns 19.9% of Solventum, but plans to sell those shares over the next five years.


We prefer 3M, which has gained 45% as the spinoff lets it focus on improving the performance of its remaining operations.


While Solventum is down 5% from its launch price, it still has long-term appeal....

You Can See Our Spinoff Stock Portfolio For April 2025 Here.


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.


2) Spinoffs involve a lot of work and legal fees....
WESTERN DIGITAL CORP. $45 is a hold. The company (Nasdaq symbol WDC; Manufacturing sector; Shares outstanding: 347.8 million; Market cap: $15.7 billion; No dividend paid; Takeover Target Rating: Medium; www.westerndigital.com) completed the spinoff of its flash memory business as Sandisk Corp....
BEACON ROOFING SUPPLY INC. $122 is a hold. The company (Nasdaq symbol BECN; Manufacturing sector; Shares outstanding: 61.6 million; Market cap: $7.5 billion; No dividend paid; Takeover Target Rating: Highest; www.becn.com) distributes residential and non-residential roofing and building products to professional contractors, home builders, building owners, lumberyards, and retailers in the U.S....
On October 16, 2023, the old NCR Corp. (New York symbol NCR) split itself into two separate firms. Investors received one share of NCR Atleos (which makes ATMs) for every two NCR shares they held. The remaining firm changed its name to NCR Voyix.


The split has delivered mixed results for investors: NCR Atleos is up 30%, while the former parent has dropped 33%.


Both firms are now taking steps to improve their profitability....

Restaurant franchisor FAT Brands recently set up its Twin Hospitality businesses as one separate, publicly traded company. Even following the spinoff, FAT Brands still has a huge holding company discount; however, we feel investors should avoid it as well as Twin Hospitality given reduced discretionary spending by consumers....
COGNIZANT TECHNOLOGY SOLUTIONS CORP. $80 is a buy. The company (Nasdaq symbol CTSH; Manufacturing sector; Shares outstanding: 494.6 million; Market cap: $39.6 billion; Dividend yield: 1.6%; Takeover Target Rating: Medium; www.cognizant.com) provides solutions to complex software development and maintenance problems that companies face as they transition to a digitized business.


The stock moved up recently on news that activist investor Mantle Ridge now owns $1 billion of the company’s shares, or about 3% of the total outstanding....

These two Canadian firms are under activist pressure to improve their operations, or put themselves up for sale. However, the Canadian government would probably block any takeover offer from a U.S.-based firm due to current tension over trade policy and tariffs.


INTERRENT REAL ESTATE INVESTMENT TRUST $11 is a hold. The REIT (Toronto symbol IIP.UN; Manufacturing sector; Units outstanding: 147.5 million; Market cap: $1.6 billion; Distribution yield: 3.7%; Takeover Target Rating: Medium; www.irent.com) owns and operates rental apartment properties with a total of 13,435 suites....
Cooking equipment maker Middleby is good example of how an activist can unlock hidden value for shareholders.


The stock has moved mostly sideways over the past 10 years, but it jumped 15% in early 2025 after the company became the target of an activist investor....
SOUTH BOW CORP. $37 is a hold. The company (Toronto symbol SOBO; Utilities sector; Shares outstanding: 208.0 million; Market cap: $7.7 billion; Dividend yield: 7.7%; Takeover Target Rating: Medium; www.southbow.com) took its current form on October 1, 2024, when TC Energy Corp....