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
TC ENERGY CORP. $65 is a buy. The company (Toronto symbol TRP; Utilities sector; Shares outstanding: 1.04 billion; Market cap: $67.6 billion; Dividend yield: 5.2%; Takeover Target Rating: Medium; www.tcenergy.com) spun off its oil pipeline business as a separate company called South Bow Corp....
After many years of expanding through acquisitions—20 purchases since 2020—medical device maker Becton Dickinson is now narrowing its focus through spinoffs.


In April 2022, the company spun off its Diabetes Care business as embecta (see page 19)....
HOWARD HUGHES HOLDINGS INC. $75 is a hold. The company (New York symbol HHH; Manufacturing sector; Shares outstanding: 49.7 million; Market cap: $3.7 billion; No dividend paid; Takeover Target Rating: Medium; www.howardhughes.com) was originally part of billionaire businessman Howard Hughes’ real estate holdings....

You Can See Our Spinoff Stock Portfolio For February 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....
FLOWCO HOLDINGS INC. has filed paperwork with U.S. regulators for an initial public offering (IPO) of 17.8 million class A common shares at between $21.00 and $23.00 a share. The shares will trade on the New York exchange under the symbol “FLOC.” Insiders will control roughly 75% of the voting power after the IPO.


Based in Houston, Texas, Flowco makes a variety of equipment to help oil and gas producers capture methane emissions from their wells....
NORDSTROM INC. $24 is a hold. The retailer (New York symbol JWN; Consumer sector; Shares outstanding: 164.9 million; Market cap: $4.0 billion; Dividend yield: 3.2%; Takeover Target Rating: Highest; www.nordstrom.com) owns and operates 381 stores in the U.S.....
Despite owning some of the world’s best-known personal care brands, the shares of Edgewell are down over 60% since it became a separate company in July 2015.


However, a new cost-cutting plan should improve its profitability and let it pay down its high debt load....
LENNAR CORP. $136 is a spinoff buy. The company (New York symbol LEN; Manufacturing & Industry sector; Shares outstanding: 271.2 million; Market cap: $36.9 billion; Dividend yield: 1.4%; Takeover Target Rating: Medium; www.lennar.com) is one of the largest homebuilders in the U.S.


The company will spin off its land acquisition business as a separate firm called Millrose Properties Inc....
In October 2019, foodmaker Post sold shares of its BellRing Brands business to the public through an IPO. Since then, Post shares are roughly flat while BellRing has soared over 440%. We still like the long-term outlook for both.


POST HOLDINGS INC....

Activists have targeted these two companies as they plan to replace their long-serving CEOs. While that pressure has helped spur their shares, we feel CAE is the better choice for your new buying.


CAE INC. $35 is a buy. The company (Toronto symbol CAE; Manufacturing & Industry sector; Shares outstanding: 318.6 million; Market cap: $11.2 billion; Dividend suspended in March 2020; Takeover Target Rating: Medium; www.cae.com) is a leading maker of flight simulators for commercial and military aircraft....