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
KENVUE INC. $23 is a hold. The company (New York symbol KVUE; Consumer sector; Shares outstanding: 1.9 billion; Market cap: $43.7 billion; Dividend yield: 3.6%; Takeover Target Rating: Medium; www.kenvue.com) makes a variety of over-the-counter drugs and health products, including Tylenol, Band-Aid and Listerine.


In May 2023, medical products giant Johnson & Johnson sold shares in Kenvue to the public at $22.00 a share....
These three medical products makers (including Kenvue, see box) have struggled as independent firms. While all three have solid prospects, embecta is the only one we see as a buy right now.


EMBECTA CORP. $16 is a spinoff buy. The company (Nasdaq symbol EMBC; Manufacturing & Industry sector; Shares outstanding: 57.3 million; Market cap: $916.8 million; Dividend yield: 3.8%; Takeover Target Rating: Medium; www.embecta.com) took its current form in April 2022 when Becton Dickinson & Co....
FORWARD AIR CORP. $36 is a hold. The Tennessee-based company (Nasdaq symbol FWRD; Manufacturing & Industry sector; Shares outstanding: 27.7 million; Market cap: $997.2 million; Dividend yield: 2.7%; Takeover Target Rating: Medium; www.forwardair.com) provides expedited air and ground freight transportation services.


The stock is now down about 50% since January 2024 following the company’s $3.2 billion purchase of Omni Logistics, which helps businesses manage their supply chains....
We keep an eye on activist investors, as they tend to look for the same things we do—companies with undervalued assets that they can sell or spin off to improve shareholder value. Two recent targets, Kinaxis and News Corp., have attractive assets. However, they will probably resist activist demands, which could hurt their stock prices.


KINAXIS INC....
On May 26, 2023, auto parts maker Cummins sold 19.5% of its filtration-products business, Atmus, to the public at $19.50 a share. On March 18, 2024, Cummins let its shareholders swap their holdings for its remaining 80.5% stake. As a result, investors exchanged 5.57 million Cummins shares for 67.05 million Atmus shares.


So far, Cummins is up over 40% since the IPO, while Atmus has gained 67%....
TC ENERGY CORP. $63 is your #1 Spinoff Buy for 2024. The company (Toronto symbol TRP; Utilities sector; Shares outstanding: 1.04 billion; Market cap: $65.5 billion; Dividend yield: 6.1%; Takeover Target Rating: Medium; www.tcenergy.com) will complete the spinoff of its oil pipeline business as separate company South Bow Corp....

On September 21, 2018, Eli Lilly set up its animal-health business as a separate company called Elanco Animal Health and sold 19.8% of its shares through an initial public offering at $24 each. The company disposed of its remaining 80.2% stake in Elanco in March 2019....

You Can See Our Spinoff Stock Portfolio For September 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....
ONESTREAM INC. $30 is a hold. The company (Nasdaq symbol OS; Manufacturing sector; Shares outstanding: 156.6 million; Market cap: $4.7 billion; No dividend paid; Takeover Target Rating: Lowest; www.onestream.com) makes software that helps over 1,400 companies prepare and report their financial statements....
23ANDME HOLDING CO. $0.33 is a hold. The company (Nasdaq symbol ME; Consumer sector; Shares outstanding: 339.5 million; Market cap: $112.0 million; No dividend paid; Takeover Target Rating: Highest; www.23andme.com) provides consumers with genetics testing.


The stock began trading on Nasdaq in June 2021 at $10....