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

In May 2016, cardboard maker WestRock spun off its Ingevity chemical business to create two pure-play firms. Shareholders received one Ingevity share for every six WestRock shares they held.


WestRock recently merged with Irish packaging firm Smurfit Kappa....
BELLRING BRANDS INC. $52 remains a spinoff buy. The company (New York symbol BRBR; Consumer sector; Shares outstanding: 130.4 million; Market cap: $6.8 billion; No dividends paid; Takeover Target Rating: Medium; www.brellring.com) makes protein bars and shakes under the Premier Protein, Dymatize, and PowerBar brands.


In October 2019, Post Holdings Inc....
Spinoffs are a great way for companies to boost shareholder value. Here’s our take on two spinoffs coming up in the second half of 2024.


BAXTER INTERNATIONAL INC. $36 is a buy. The company (New York symbol BAX; Manufacturing sector; Shares o/s: 507.8 million; Market cap: $18.3 billion; Dividend yield: 3.2%; Takeover Target Rating: Medium; www.baxter.com) makes a variety of medical devices, including intravenous pumps and kidney-dialysis equipment.


Under a new strategy to narrow its focus to specialized equipment for hospitals, including intensive-care-unit beds, operating tables, patient monitoring equipment and electronic diagnostic systems, Baxter is shedding some of its other businesses.


As part of that strategy, Baxter plans to spin off later this year its Renal Care and Acute Therapies unit as a separate firm called Vantive....
ETSY INC. $65 is a hold. The company (Nasdaq symbol ETSY; Consumer sector; Shares outstanding: 116.9 million; Market cap: $7.6 billion; No dividend paid; Takeover Target Rating: Medium; www.etsy.com) operates an online marketplace that brings together buyers and sellers of unique and creative consumer goods.


Etsy’s shares are down about 20% since the start of 2024, mainly due to concerns that cost-conscious consumers are spending less on discretionary goods.


Activist firm Elliott Management, which owns about 13% of the stock, feels Etsy can expand its customer base with a new loyalty program....
The shares of these three firms (including Etsy, see box) are down sharply in the past few years. That has attracted the attention of activist investors who see a way to turn these stocks around. While their plans have merit, it could take years for them to recover.


WOLFSPEED INC....

A key reason why spinoffs tend to work out well is because investors prefer “pure-play” firms that they can more easily evaluate and compare to other stocks.


Iconic food maker Maple Leaf Foods now plans to set up its less-profitable hog processing business as a separate, publicly traded firm....
CONAGRA BRANDS INC. $30 is a buy. The company (New York symbol CAG; Consumer sector; Shares outstanding: 478.2 million; Market cap: $14.3 billion; Dividend yield: 4.7%; Takeover Target Rating: Medium; www.conagra.com) spun off its potato-processing operations as Lamb Weston Holdings Inc....

On June 4, 2018, Wyndham Worldwide (old New York symbol WYN) split into two new companies. For every WYN share investors held, they received one share each of the new companies—Wyndham Hotels and Resorts, and Wyndham Destinations (now called Travel + Leisure).


Wyndham Hotels is up 30% since the split....
WAYSTAR HOLDING CORP. $21 is a hold. The company (Nasdaq symbol WAY; Manufacturing sector; Shares outstanding: 167.4 million; Market cap: $3.5 billion; No dividend paid; Takeover Target Rating: Lowest; www.waystar.com) makes software that helps hospitals and doctors manage their finances....
BECTON DICKINSON & CO. $234 is a buy. The medical device maker (New York symbol BDX; Manufacturing sector; Shares outstanding: 283.9 million; Market cap: $66.4 billion; Dividend yield: 1.6%; Takeover Target Rating: Medium; www.bd.com) has agreed to acquire the Critical Care product group of Edwards Lifesciences Corp....