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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Resideo’s shares have moved mostly sideways since the split. That’s partly because the company assumed responsibility for some of Honeywell’s environmental obligations. However, a new deal with Honeywell has eliminated all future monetary obligations.
The company also plans to spin off its ADI Global Distribution division. ADI supplies over 500,000 electronic items, such as security systems, fire alarms and access control devices, to commercial customers.
These two developments help cut Resideo’s risk and should push the stock higher over the next few years.
Medtronic recently announced that it would separate its diabetes business into a standalone company within 18 months. The company intends first to conduct an IPO of less than 20% for the diabetes unit and then hand out the remaining 80% to its shareholders.
The split has not worked out well for VF—its shares are down about 80%. However, the company is aggressively cutting its costs, which will help offset the impact of new tariffs on imports from Vietnam and China.
Kontoor, on the other hand, is up over 90%. While also exposed to tariffs, the company stands to gain from its recent acquisition of the Helly Hansen sportswear brand.
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.
On June 18, 2025, Slide completed an initial public offering of 20.0 million shares at $19.00 each. The stock immediately jumped 24%, but has since dropped back to the offering price.
In April 2021, MDA began trading on the Toronto exchange following its IPO at $14 a share.
Thanks to rebounding travel volumes following the COVID-19 pandemic, Wyndham Hotels is up over 30% since the split. Investors will also benefit from the company’s new focus on collecting fees for branding and franchising. In 2023, it got out of the less-profitable business of managing properties on behalf of owners.
Travel + Leisure is up just 16% since the split. However, the company continues to shift from operating timeshare properties to a multi-branded enterprise focused on leisure travel. That cuts its risk, and should drive the stock higher.
The company still plans to separate the two businesses in the second half of 2025. It has not yet announced the terms of the transaction, whether it will spin off or sell of the Topgolf (driving range) business.