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
MATTHEWS INTERNATIONAL CORP. $25 is a hold. The company (New York symbol MATW; Manufacturing sector; Shares outstanding: 31.0 million; Market cap: $775.0 million; Dividend yield: 4.2%; Takeover Target Rating: Medium; www.matw.com) has two businesses: Industrial Technologies makes a variety of products such as batteries and warehouse robotics equipment; and Memorialization makes caskets and gravestones.


Activist investment firm Barrington Capital Group, which owns about 3% of Matthews’ stock, recently lost a proxy fight to install three of its representatives on the company’s board of directors.
We pay attention to activist investors, as they tend to target companies with undervalued assets that can be sold or spun off. Both of those can add significant value. However, these two activist targets have limited short-term prospects.
FedEx recently announced that it would spin off FedEx Freight as a separate company. This business is a leading provider of less-than-truckload (LTL) services, which puts freight from multiple customers onto a single vehicle.


Investors will only be liable for capital gains taxes when they sell their new shares. The company expects to complete the transaction in mid-2026.



The new FedEx Freight business will have over 30,000 vehicles that handle an average of 92,000 shipments a day. About 66% of its annual revenue of $9.4 billion comes from priority shipments (items that must be delivered quickly) and 34% from slower, lower-priced shipments. The new firm could also become an attractive takeover target.



The spinoff is part of a broader plan to improve efficiency and cut costs. That will put Fed- Ex in a better position to adapt to new tariffs as well as spur its long-term profitability.
WK KELLOGG CO. $23 is a hold. The company (New York symbol KLG; Consumer sector; Shares outstanding: 86.3 million; Market cap: $2.0 billion; Dividend yield: 4.1%; Takeover Target Rating: Highest; www.wkkellogg.com) makes breakfast cereals and related products for the North American market. Top brands include Special K, Raisin Bran, Corn Flakes, All-Bran and Froot Loops.


On October 3, 2023, iconic foodmaker Kellogg Company split into two independent firms—WK Kellogg and Kellanova. Investors received one WK Kellogg share for every four Kellogg shares they held. The former parent then changed its name to Kellanova.
Conglomerate General Electric has now completed its plan, first announced in 2021, to split into three publicly listed firms: GE Aerospace (jet engines), GE Vernova (electrical power equipment), and GE HealthCare (x-ray machines and MRI scanners).


Share prices for all three of these companies are up since the split. That’s because investors prefer pure-play firms, which are easier to compare with competing investments.



While we like the long-term prospects for all three, we prefer GE HealthCare for your new buying.
On October 3, 2023, iconic foodmaker Kellogg Company split into two independent firms—WK Kellogg and Kellanova. Investors received one WK Kellogg share for every four Kellogg shares they held. The former parent then changed its name to Kellanova.


Due to a takeover offer, Kellanova is up 50% since the breakup....
OMADA HEALTH INC. $15 is a hold. The company (Nasdaq symbol OMDA; Manufacturing sector; Shares outstanding: 56.9 million; Market cap: $853.5 million; No dividends paid; Takeover Target Rating: Medium; www.omadahealth.com) provides virtual care and monitoring plans for people with diabetes, hypertension and musculoskeletal issues....

You Can See Our Spinoff Stock Portfolio For July 2025 Here.


Why we like spinoffs so much
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....
INTERRENT REAL ESTATE INVESTMENT TRUST $13.57 is a hold. The REIT (Toronto symbol IIP.UN; Manufacturing sector; Units outstanding: 139.8 million; Market cap: $1.9 billion; Distribution yield: 3.7%; Takeover Target Rating: Highest; www.irent.com) owns and operates rental apartment properties with a total of 13,408 suites.


Under pressure from activist investor Anson Funds, which owns 9% of the units, the REIT has accepted a $13.50-a-unit takeover offer from executive chair Mike McGahan and Singapore sovereign wealth fund GIC.


InterRent has 40 days to seek out a better offer, which is why the units are currently trading just above the current bid.


Investors should tender their units to the offer....
In April 2022, telecom giant AT&T Inc. (New York symbol T) merged its WarnerMedia business with Discovery Inc. to form a new company called Warner Bros. Discovery. AT&T investors received 0.241917 shares of WBD as a tax-free distribution for each share they owned.


The new firm has struggled as consumers continue to cut their cable TV subscriptions in favour of streaming services....