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
The shares of contract manufacturer Flex (formerly called Flextronics International) traded in a narrow range for most of the past 10 years. However, the stock started to move up in late 2022 when the company announced that it would spin off its solar panel tracking business, called Nextracker.


As with most spinoffs, we feel this split will ultimately benefit both companies....
HOWARD HUGHES HOLDINGS INC. $76 is a hold. The company (New York symbol HHH; Manufacturing sector; Shares outstanding: 50.1 million; Market cap: $3.8 billion; No dividend paid; Takeover Target Rating: Medium; www.howardhughes.com) was originally part of billionaire businessman Howard Hughes’ real estate holdings....
Shares of these two firms have drifted lower since their spinoffs. We still like their long-term prospects, but Edgewell is the better choice for your new buying.


HENRY SCHEIN INC. $74 is a hold. The company (Nasdaq symbol HSIC; Manufacturing & Industry sector; Shares outstanding: 136.1 million; Market cap: $10.1 billion; No dividend paid; Takeover Target Rating: Medium; www.henryschein.com) is the world’s largest provider of health-care products and services to doctors and dentists....
MATCH GROUP INC. $36 is a hold. This company (Nasdaq symbol MTCH; Consumer Sector; Shares outstanding: 268.9 million; Market cap: $9.7 billion; No dividend paid; Takeover Target Rating: Medium; www.mtch.com) owns dating websites Tinder, Match, Hinge and OK-Cupid....
The shares of these three stocks (including Match Group—see box) are down sharply in the past few years. That has attracted the attention of activist investors, who believe there are ways to boost those prices. However, we see better opportunities elsewhere.


ETSY INC....
Medical products giant Johnson & Johnson first sold shares in its consumer drug business, Kenvue, to the public in May 2023 at $22.00 a share. Johnson & Johnson later let its own shareholders exchange JNJ shares for Kenvue shares at a 7% discount. The company held onto 9.5% of Kenvue, which it will likely sell in the next few months.


So far, Johnson & Johnson shares are down 5%, while Kenvue is down 14%....
VF CORP. $17 is still a buy, but only for aggressive investors. The company (New York symbol VFC; Consumer sector; Shares outstanding: 388.8 million; Market cap: $6.6 billion; Dividend yield: 2.1%; Takeover Target Rating: Medium; www.vfc.com) is one of the world’s largest apparel suppliers and a leader in the outdoor, sportswear, and workwear markets....

Shares of medical device maker Baxter have dropped 7% in the past six months. The decline reflects investor fears that new GLP-1 diabetes drugs, such as Ozempic, will hurt demand for Baxter’s kidney dialysis equipment (diabetes contributes to kidney disease)....
AMER SPORTS INC. has filed paperwork with U.S. regulators for an initial public offering (IPO) of common shares. The shares will trade on New York under the symbol AS.


Based in Chicago, Amer sells sports clothing, equipment and related accessories to consumers in over 100 countries....

ABBVIE INC. $162 is a buy. The company (New York symbol ABBV; Manufacturing sector; Shares outstanding: 1.8 billion; Market cap: $291.6 billion; Dividend yield: 3.8%; Takeover Target Rating: Medium; www.abbvie.com) makes biopharmaceuticals, with leading positions in immunology, oncology, aesthetics, neuroscience and eye care.


AbbVie has agreed to acquire ImmunoGen Inc....