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
TOAST INC. makes point-of-sale software and hardware for restaurants. The company’s system makes it easier for restaurants to accept online orders and payments. Clients can also use this customer data to improve their loyalty and marketing programs. About 48,000 restaurants currently use this platform, processing over 5.5 million orders a day.


The company plans to sell 21.7 million class A shares (one vote per share) through an initial public offering at between $30 and $33....
DANAHER CORP. $325 is a buy. The company (New York symbol DHR; Manufacturing sector; Shares outstanding: 713.9 million; Market cap: $232.0 billion; Dividend yield: 0.3%; Takeover Target Rating: Medium; www.danaher.com) is a leading maker of precision-testing equipment and tools....
On February 5, 2021, Zimmer Biomet announced it would spin off its Spine and Dental businesses as a publicly traded company. The news helped push the stock up to $180 in April, but it is now down 19% from that peak. That’s due to concerns the spread of the Delta variant of COVID-19 will once again force hospitals to postpone orthopedic surgeries....
KAR AUCTION SERVICES INC. $16 is a buy. The company (New York symbol KAR; Manufacturing & Industry sector; Shares outstanding: 119.2 million; Market cap: $1.9 billion; No dividends paid; Takeover Target Rating: Medium; www.karauctionservices.com) sells used and salvaged vehicles at physical auction sites in the U.S., Canada, Mexico, Europe, and the U.K.


On June 28, 2019, the company completed its spinoff of IAA Inc....
As we’ve said many times before, spinoffs are the closest thing you can find to a sure thing. Studies show that both the parent and the spinoff ultimately do better than comparable companies for a number of years, if not decades. However, investors should avoid smaller firms with little or no profits, such as the two below, that use spinoffs to spur their stock price.


BLUEBIRD BIO INC....
BLUE PRISM GROUP PLC $16 is a hold for aggressive investors. Based in the U.K., the company (Nasdaq symbol BPRMF; Manufacturing & Industry sector; Shares outstanding: 96.6 million; Market cap: $1.5 billion; No dividend paid; Takeover Target Rating: Medium; www.blueprism.com) makes cloud-based software that helps businesses...
While activist investors have a spotty record of success, it’s still worth keeping an eye on them given their focus on finding hidden value. Here are two companies now being targeted by activists. That should benefit all investors. Still, we see just one of the picks as right for your new buying.


CANADIAN NATIONAL RAILWAY CO....
On August 3, 2021, L Brands (old New York symbol LB) broke itself up into two separate, publicly traded companies: Victoria’s Secret stores (which sell lingerie); and Bath & Body Works outlets (personal-care products, including soaps and shampoos).


Investors received one new share of Victoria’s Secret for every three shares of L Brands they held....
TECK RESOURCES LTD. $34 is a buy. The company (Toronto symbol TECK.B; Resources sector; Shares o/s: 532.5 million; Market cap: $18.1 billion; Dividend yield: 0.6%; Takeover Target Rating: Lowest; www.teck.com) is reportedly planning the sale or spin-off of its metallurgical coal business....
As we often remind our readers, spinoffs are a great way for out-of-favour companies to boost shareholder value.


International Paper is key example. While the shutdown of schools due to COVID-19 hurt demand for writing and printing paper, the pandemic also increased demand for its cardboard packaging as more people began to order goods online.


The company now plans to spin off its printing paper business as a separate firm called Sylvamo....