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
In October 2019, foodmaker Post Holdings sold shares of its BellRing Brands business to the public through an IPO. BellRing makes protein bars, shakes and nutritional supplements.


Post now plans to distribute its remaining BellRing shares to its own investors, probably in the first half of 2022.


The plan should benefit shareholders of both firms....
VEONEER INC. $36.57 is now a hold. The company (New York symbol VNE; Manufacturing & Industry sector; Shares outstanding: 112.0 million; Market cap: $4.1 billion; No dividend paid; Takeover Target Rating: Highest; www.veoneer.com) makes automotive radar, cameras with driver-assist systems, night-vision equipment, and brake controls.


On June 29, 2018, Swedish auto parts makers Autoliv spun off Veoneer as a separate firm....
One of our long-time favourite stocks, Danaher Corp. spun off its industrial testing equipment business as Fortive in 2016. That new firm then spun off its own automotive-related businesses in 2020 as Vontier.


As we often point out, new spinoff firms tend to move sideways for the first year or two until they build up a following among brokers and investors....
Robinhood Markets Inc. operates an online platform that lets users make unlimited commission-free trades in stocks, exchange-traded funds, options and cryptocurrencies. Most of its revenue comes from the fees it collects from routing trades to stock market makers and brokers....
HONEYWELL INTERNATIONAL INC. $232 is a buy. The company (New York symbol HON; Manufacturing & Industry sector; Shares outstanding: 694.6 million; Market cap: $161.1 billion; Dividend yield: 1.7%; Takeover Target Rating: Medium; www.honeywell.com) aims to take advantage of the huge potential of quantum computing systems, which can process data much faster than regular computers.


Honeywell’s trapped-ion technology uses individually charged atoms (ions) to hold quantum information....
Transportation firm XPO will soon complete the spinoff of its logistics business after stock market disruptions caused by COVID-19 initially delayed that split.


The breakup will create two pure-play firms—one focused on hauling goods on trucks, and one devoted to improving the flow of goods....
ALLIANCE DATA SYSTEMS CORP. $100 is a spinoff buy. The company (New York symbol ADS; Finance sector; Shares outstanding: 49.7 million; Market cap: $5.0 billion; Dividend yield: 0.9%; Takeover Target Rating: Medium; www.alliancedata.com) has two main businesses: Card Services (83% of 2020 revenue) operates private-label credit card programs on behalf of retailers including Express and ULTA Beauty; and LoyaltyOne (17%) operates customer loyalty reward plans such as Air Miles in Canada and BrandLoyalty (The Netherlands).


Alliance Data now plans to split its two businesses into separate, U.S.-based companies....
Spinoff activity continues to pick up as stock markets recover from last year’s COVID-19 downturn. Of these three recent spinoffs, we see two as buys.


SOLARWINDS CORP. $11 is a hold. The company (New York symbol SWI; Manufacturing & Industry sector; Shares outstanding: 316.2 million; Market cap: $3.5 billion; No dividends paid; Takeover Target Rating: Medium; www.solarwinds.com) makes software that helps businesses monitor their computer networks (including cloud-based systems) for potential problems.


On July 19, 2021, the company completed the spinoff of its Managed Service Provider (MSP) software business as a separate company called N-able Inc....
AVIVA PLC. $11 is a hold. The company (Over-the-counter Pink Sheets symbol AVVIY; Finance sector; Shares outstanding: 2.0 billion; Market cap: $22.0 billion; Dividend yield: 5.7%; Takeover Target Rating: Medium; www.aviva.com) is a U.K.-based provider of life, health and property insurance products....
We continue to keep an eye on activist investors. Like us, they search for undervalued firms that can boost shareholder value by selling or spinning off assets, or putting themselves up for sale. Here are three recent examples.


CLOUDERA INC. $16 is a hold. The company (New York symbol CLDR, Manufacturing & Industry sector; Shares outstanding: 296.1 million; Market cap: $4.7 billion; No dividend paid; Takeover Target Rating: Highest; www.cloudera.com) makes software for data engineering, data warehousing, machine learning and analytics....