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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Each stock has held up well despite the war in the Middle East, which has increased the cost of air travel and road trips.
Wyndham Hotels is now up 35% since the split, and should continue to benefit from its “asset-light” business model. For its part, Travel + Leisure has jumped over 60%, thanks to pent-up demand for travel following the COVID-19 pandemic.
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.
In April 2019, Fairfax Financial Holdings Limited (Toronto symbol FFH) acquired all of AGT’s shares for $19.00 each.
Honeywell has agreed to acquire the Catalyst Technologies operations of U.K.-based Johnson Matthey plc. That business makes chemicals that manufacturers use to make aviation fuel, fertilizers and paints.
VF shares are down 80% since the split, due to tariffs on imports from China and Vietnam. However, the stock has rebounded from its recent low as its plan to cut costs and sell less-important brands is set to drive earnings higher over the next few years.
While Kontoor has gained nearly 70%, we feel it can still go higher as it streamlines its supply chains. It will also benefit from its recent acquisition of the Helly Hansen sportswear brand.
However, instead of a spinoff, IAC has now agreed to sell its Care.com business to private equity firm Pacific Avenue Capital Partners. Care.com operates an online portal that helps connect families with professional caregivers for their children, elderly parents and pets. The company paid $626.9 million for this business in February 2020. It will receive $320 million when it completes the sale in mid-2026.
In June 2025, Lamb Weston struck a new deal with activist investment firm Jana Partners, which owns about 7% of the company. As a result, it added four of Jana’s representatives to its board of directors.
Under the agreement with Jana, Lamb Weston recently announced a new restructuring plan, including focusing on its more-profitable products and on cutting costs. The plan should trim Lamb Weston’s annual costs by $250 million starting in 2028.
Both stocks have struggled since the split, partly due to the added tariffs on products imported from China and other countries. The two firms are now cutting costs and re-focusing on their main brands, which enhances their long-term prospects. Still, we continue to prefer Bath & Body Works for its solid dividend.