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.

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Spinoffs Library Archives
Following a long series of acquisitions, WELL Health is now the largest private-sector operator of outpatient medical clinics in Canada. Despite acquisitional risk, the stock is less volatile than it might seem as the company gets most of its revenue from Canada’s healthcare sector, which is government-backed and recession resilient....

You Can See Our Spinoff Stock Portfolio For March 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....
TITAN AMERICA SA $16 is a hold. The company (New York symbol TTAM; Manufacturing sector; Shares outstanding: 184.4 million; Market cap: $3.0 billion; No dividends paid; Takeover Target Rating: Lowest; www.titanamerica.com) makes cement and other building materials, mainly for customers in Florida and the U.S....

HEWLETT-PACKARD ENTERPRISE CO. $22 is a hold. This firm (New York symbol HPE; Manufacturing sector; Shares outstanding: 1.3 billion; Market cap: $28.6 billion; Dividend yield: 2.4%; Takeover Target Rating: Medium; www.hpe.com) agreed to acquire Juniper Networks Inc....
Specialized insurer Trisura took its current form on June 22, 2017, when Brookfield Asset Management Inc. (now Brookfield Corp.) spun off its specialty insurance business as Trisura. Investors received one Trisura share for every 170 Brookfield shares they held.


After moving sideways for a few years, the stock shot up to just under $48 in December 2022 (all per-share amounts adjusted for a 4-for-1 stock split in June 2021)....
WK KELLOGG CO. $20 is a spinoff buy. The company (New York symbol KLG; Consumer sector; Shares outstanding: 85.8 million; Market cap: $1.7 billion; Dividend yield: 3.3%; Takeover Target Rating: Medium; www.wkkellogg.com) makes breakfast cereals and related products for the North American market.


In October 2023, the old Kellogg Co....

In November 2016, Yum Brands set up its Chinese operations as Yum China and gifted its investors with shares in the new company. Specifically, investors received one share of the new firm for each YUM share they held.


Both stocks continue to rebound from pandemic closures, partly due to their successful digital ordering platforms that speed up service and encourage higher spending per visit....
LKQ CORP. $39 is a hold. The company (Nasdaq symbol LKQ; Manufacturing sector; Shares outstanding: 260.0 million; Market cap: $10.1 billion; Dividend yield: 3.1%; Takeover Target Rating: Medium; www.lkqcorp.com) sells replacement parts for cars and light trucks in North America and Europe.


LKQ stands for “Like, Kind & Quality.” That’s a term for recycled or refurbished replacement parts that are acceptable to insurers in auto claims.


LKQ has now placed two nominees, one each from activist investors Ancora Catalyst and Engine Capital, on its board of directors....

We pay close attention to activist investors, as they tend to target undervalued companies that could boost their value with asset sales or spinoffs. However, we see better opportunities than these three activist targets (including box).


UBER TECHNOLOGIES INC....
The shares of embecta are now down over 60% since Becton Dickinson (see page 17) spun it off as a separate firm in April 2022.


That decline is largely due to fears that new GLP-1 weight loss drugs, such as Ozempic, will cut demand from diabetics (many of whom are overweight) for embecta’s insulin products.


The company is now re-focusing its businesses, including discontinuing an insulin patch product that would have limited commercial viability....