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
Medical products maker Edwards Lifesciences was originally a unit of Baxter International Inc. (New York symbol BAX) until that firm spun off Edwards as a separate company in March 2000.


Edwards now plans a spinoff of its own, setting up its Critical Care business, which makes patient monitoring equipment, as a separate firm....
MOBILEYE GLOBAL INC. $28 is a hold. Based in Israel, the company (Nasdaq symbol MBLY; Manufacturing sector; Shares outstanding: 805.7 million; Market cap: $22.6 billion; No dividend paid; Takeover Target Rating: Lowest; www.mobileye.com) specializes in computer chips and software to power self-driving cars....
Each of these two firms recently decided to merge one of its businesses with another firm instead of pursuing a full spinoff. While these moves improve their outlook, we feel there are better opportunities for your spinoff gains.


LIONS GATE ENTERTAINMENT CORP....
NAVIOS MARITIME PARTNERS L.P. $29 is a hold but only for aggressive investors. This Monaco-based limited partnership (New York symbol NMM; Manufacturing & Industry sector; Units outstanding: 30.8 million; Market cap: $893.2 million; Dividend yield: 0.7%; Takeover Target Rating: Medium; www.navios-mlp.com) operates a fleet of 177 dry bulk, container and tanker vessels.


Activist investor Ned Sherwood, who owns 5.4% of Navios, recently sent a letter to the board of directors outlining several proposals to improve investor value and governance....
The share prices of these two technology firms are down sharply. The slide has prompted activist investors to demand each company slash costs or put itself up for sale. Even without major moves, we feel one of the two–Twilio–has strong prospects for a rebound and long-term growth.


TWILIO INC....
On December 1, 2023, Worthington Industries spun off its steel processing operations as Worthington Steel. Shareholders received one share of the new firm for each share they held. The former parent then changed its name to Worthington Enterprises.


The split should let both firms better focus on their core markets and so unlock shareholder value....
HEWLETT-PACKARD ENTERPRISE CO. $15 is a hold. The company (New York symbol HPE; Manufacturing sector; Shares outstanding: 1.3 billion; Market cap: $19.5 billion; Dividend yield: 3.4%; Takeover Target Rating: Medium; www.hpe.com) took its current form on November 1, 2015, when the old Hewlett-Packard Co....

Pipeline giant TC Energy is your #1 Spinoff Buy for 2024. The former TransCanada Pipelines will soon spin off its oil pipeline business and its remaining operations will consist of gas pipelines and electrical power assets.


The stock has gained 11% since the spinoff announcement in July 2023....
MAPLEBEAR INC. $25 is a hold. The company, (Nasdaq symbol CART; Manufacturing sector; Shares outstanding: 280.2 million; Market cap: $7.0 billion; No dividend paid; Takeover Target Rating: Lowest; www.instacart.com), does business as Instacart, operating an online grocery delivery and pick-up service in the U.S....
TOURMALINE OIL CORP. $60 is a hold. The company (Toronto symbol TOU; Resources sector; Shares outstanding: 340.8 million; Market cap: $20.4 billion; Dividend yield: 1.9%; Takeover Target Rating: Medium; www.tourmalineoil.com) is a Canadian oil and natural gas exploration, development and production company....