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

ACI WORLDWIDE INC. $39 is a buy. The company (Nasdaq symbol ACIW; Manufacturing & Industry Sector; Shares outstanding: 116.8 million; Market cap: $4.6 billion; No dividend paid; Takeover Target Rating: Medium; www.aciworldwide.com) is the leading software provider for processing transactions by credit cards, debit cards, automated teller machines, point-of-sale terminals and interbank systems....

LAMB WESTON HOLDINGS INC. $77 remains a spinoff buy. The company (New York symbol LW; Consumer sector; Shares o/s: 146.0 million; Market cap: $11.2 billion; Takeover Target Rating: Highest; Dividend yield: 1.2%; www.lambweston.com) produces frozen potatoes and other vegetable products for restaurants and prepared-food makers.


Until November 9, 2016, it was a wholly owned subsidiary of Conagra Brands (New York symbol CAG)....

Spinoff announcements have started to pick up as stock markets continue to recover from the March 2020 COVID-19 downturn. Here are two upcoming spinoffs that we expect will unlock value and fuel your returns.


IAC/INTERACTIVE CORP. $205 is a buy. The Internet and media company (Nasdaq symbol IAC; Manufacturing & Industry Sector; Shares outstanding: 85.3 million; Market cap: $17.5 billion; No dividend paid; Takeover Target Rating: Lowest; www.iac.com) has a long history of developing online businesses and spinning them off when it feels they are ready to thrive on their own....

FIREEYE INC. $22 is a buy for aggressive investors. The company (Nasdaq symbol FEYE, Manufacturing & Industry sector; Shares outstanding: 227.7 million; Market cap: $5.0 billion; No dividend paid; Takeover Target Rating: Medium; www.fireeye.com) is a cybersecurity software firm that aims to provide businesses and governments worldwide with real-time threat protection against increasingly sophisticated cyber-attacks.


The business recently acquired Respond Software for $186 million in cash and shares....

Expanding by acquisition is always riskier than growth from existing operations. Still, here are two companies that we feel will benefit from their latest purchases.


DYE & DURHAM LTD. $43 is a buy. The company (Toronto symbol DND, Manufacturing & Industry sector; Shares outstanding: 46.7 million; Market cap: $2.0 billion; Dividend yield: 0.2%; Takeover Target Rating: Medium; www.dyedurham.com) is a cloud-based software provider for legal and business professionals.


On July 17, 2020, Dye & Durham completed an initial public offering of 17 million shares at $7.50 each....

Computer chip giant Intel has struggled lately as manufacturing problems have forced it to delay the launch of its next-generation chips. Investors fear that gives its competitors a big advantage. As a result, activist investor Daniel Loeb now wants Intel to consider selling or spinning off some of its operations.


That pressure is already paying off—the stock jumped 10% on news that Intel’s former chief technology officer, Pat Gelsinger, will replace Bob Swan as CEO....


DANAHER CORP. $237 is a buy. The company (New York symbol DHR; Manufacturing & Industry sector; Shares outstanding 707.2 million; Market cap: $167.6 billion; Dividend yield: 0.3%; Takeover Target Rating: Medium; www.danaher.com) is a leading maker of precision-testing equipment and tools....


For 2021, we’ve chosen IBM as your #1 Spinoff Buy.

The company’s shares have lagged other big tech stocks in the past year. That’s mainly due to concerns that IBM’s older, slower-growing legacy businesses were holding back its faster-growing cloud computing operations....

CONOCOPHILLIPS $42 is a hold. The company (New York symbol COP; Resources sector; Shares outstanding: 1.1 billion; Market cap: $46.2 billion; Dividend yield: 4.0%; Takeover Target Rating: Medium; www.conocophillips.com) is a Houston-based oil and natural gas exploration and production company.


The company is now buying Concho Resources Inc....

B&G FOODS INC. $29 is a hold. The company (New York symbol BGS; Consumer sector; Shares outstanding: 64.3 million; Market cap: $1.9 billion; Dividend yield: 6.5%; Takeover Target Rating: Highest; www.bgfoods.com) makes prepackaged food and household products in the U.S....