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
LAMB WESTON HOLDINGS INC. $76 is a buy. The company (New York symbol LW; Consumer sector; Shares outstanding: 142.6 million; Market cap: $10.8 billion; Dividend yield: 1.9%; Takeover Target Rating: Highest; www.lambweston.com) is a leading producer of frozen french fries, potatoes and other packaged vegetables.


Lamb Weston’s sales and earnings have suffered lately as cost-conscious consumers make fewer trips to fast-food restaurants in an effort to cope with higher inflation and interest rates....
These two medical-related spinoffs have struggled since they became separate companies. That has attracted the interest of activist investors. While that attention improves the prospects of both firms, we see better opportunities elsewhere.


KENVUE INC....
Diversified manufacturer Honeywell recently announced that it will spin off its Advanced Materials business as a separate firm. That unit make a variety of products, ranging from body armour and pharmaceutical packaging to air-conditioning refrigerants and packaging films.


Activist investor Elliott Investment Management, which owns $5 billion of Honeywell’s shares, instead wants the company to split another way, with one of the new businesses focused on automation, energy and sustainability solutions; the other would be focused on aerospace....
GE VERNOVA INC. $343 is a hold. The company (New York symbol GEV; Manufacturing sector; Shares outstanding: 275.7 billion; Market cap: $94.6 billion; No dividend paid; Takeover Target Rating: Medium; www.gevernova.com) makes turbines and related equipment for gas-fired and nuclear power plants, plus equipment for wind farms.


On April 2, 2024, investors in the old General Electric Co....
On May 22, 2019, apparel maker VF Corp. spun off its Lee and Wrangler jeans business as the publicly traded Kontoor Brands. Investors received one share in Kontoor for every seven VF shares they held. So far, the split has produced mixed results. While the new Kontoor shares have soared 114%, the former parent is down 80%.


In response, in July 2023, VF brought in a new CEO Bracken Darrell, who launched a turnaround strategy....
JOHNSON & JOHNSON $164 is a spinoff buy. The company (New York symbol JNJ; Manufacturing sector; Shares outstanding: 2.4 billion; Market cap: $393.6 billion; Dividend yield: 3.0%; Takeover Target Rating: Medium; www.jnj.com) sold shares of its consumer drug business, Kenvue Inc....
These two medical industry leaders are facing demands from activists to expand their current cost-cutting plans. While that pressure helps draw investor attention to their high-quality assets, Pfizer is your better choice for long-term gains.


PFIZER INC....

You Can See Our Spinoff Stock Portfolio For November 2024 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....
CEREBRAS SYSTEMS INC. has filed paperwork with U.S. regulators for an initial public offering (IPO) of common shares. The shares will trade on Nasdaq under the symbol CBRS.


Based in California, the company makes specialized, high-performance computer chips for artificial intelligence and other applications....

DUCKHORN PORTFOLIO INC. $11 is a hold. The company (New York symbol NAPA; Consumer sector; Shares outstanding: 147.2 million; Market cap: $1.6 billion; No dividend paid; Takeover Target Rating: Highest; www.duckhornportfilio.com) is a Napa Valley, California-based winery founded in 1976 by Dan and Margaret Duckhorn....