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.
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The company recently announced plans to separate its seeds business from its agricultural chemical operations and produce two publicly traded firms by the end of 2026.
Corteva has already gained an impressive 140% since the old DowDuPont spun it off in June 2019. We feel this latest move will set up shareholders for even more gains, as stock market investors tends to prefer “pure-play” firms that are easier to evaluate and compare against rival companies.
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. The parent will only spin off the unwanted subsidiary if it can’t sell the stock for what it feels it’s worth.
Based in Utah, FireFly makes battery-powered robotic lawn mowers, turf harvesters, and related equipment for golf courses, sports facilities and agricultural companies. Equipment sales supply 90% of its revenue. The remaining 10% comes from maintenance services and software subscriptions. The company sells its products in the U.S., Canada, the U.K., Australia, Brazil, South Africa and Mexico.
Enghouse tends to use acquisitions to fuel its growth. For example, it recently paid an undisclosed amount for the telecommunications division of Chile-based Sixbell. The purchase will expand the company’s Latin American business, which is seeing strong demand for its next-generation telecom technology.
Edgewell has struggled since the split—the stock is now down nearly 80%.
However, the company is selling some of its less-important operations to strengthen its balance sheet. A lower debt load, combined with its well-known brands, could make the company an appealing takeover target.
The company still plans to spin off its FedEx Freight division as a separate company. This business is a leading provider of less-than-truckload (LTL) services, which combines freight from multiple customers into a single vehicle. The new shares will trade on the New York exchange under the “FDXF” symbol when FedEx completes the transaction in June 2026.
The split has produced mixed results for investors—NCR Atleos is up about 80%, while NCR Voyix is down over 60%. Both firms are cutting costs, which should spur their earnings growth. However, we see better opportunities for your new buying.
Activist investment firm Kimmeridge, which holds an undisclosed stake in the company, recently sent a letter to Coterra’s board of directors outlining several proposals to improve investor value and governance. Those include selling or spinning off the Marcellus and Anadarko assets and focusing solely on the Permian properties.
It seems likely that Calian will sell or spin off some of its businesses. That should spur the stock even higher as investors prefer pure-play companies that are easier to evaluate and compare to other firms.
Even without a spinoff, Calian will continue to benefit from its steady stream of government contracts. The company also has no controlling shareholder, which could make it an attractive takeover target.