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

One of the big drivers of interest in spinoffs is that they create companies focused on a single business. Investors prefer these “pure-play” firms as they are easier to evaluate as potential takeover targets. Even without those kind of offers, we expect shares of Synnex and its new spinoff, Concentrix, to push higher.


SYNNEX CORPORATION $83 is a spinoff buy. The company (New York symbol SNX; Manufacturing sector; Shares outstanding: 51.5 million; Market cap: $4.3 billion; Dividend suspended in March 2020; Takeover Target Rating: Medium; www.synnexcorp.com) provides a range of distribution, logistics and integration services for the technology industry....

Now that uncertainty over the COVID-19 pandemic is starting to fade, companies are once again pursuing spinoffs as a way to increase shareholder value. Below, we look at one recently completed spinoff, and one that may occur in the next few months.


The old AARON’S INC. (New York symbol AAN) sells furniture and electronics through more than 1,500 company- and franchisee-owned stores in 46 U.S....

CHEMOURS CO. $27 is a buy for aggressive investors. The company (New York symbol CC; Manufacturing & Industry sector; Shares outstanding: 164.5 million; Market cap: $4.4 billion; Takeover Target Rating: Highest; Dividend yield 3.7%; Takeover Target Rating: Highest; www.chemours.com) makes a variety of chemicals, including titanium dioxide (TiO2), a popular pigment; refrigerants and Teflon coatings; and chemicals for gold production, water treatment and other industrial uses.


Chemours began trading in July 2015 after DuPont (New York symbol DD) spun off the company....

DOREL INDUSTRIES INC. $14.40 is a hold. The company (Toronto symbol DII.B; Consumer sector; Shares outstanding: 32.5 million; Market cap: $468.0 million; No dividend paid; Takeover Target Rating: Highest; www.dorel.com) makes ready-to-assemble home and office furniture; juvenile products such as car seats, strollers, high chairs, toddler beds and cribs; and bicycles and other sporting goods.


Dorel recently accepted a $14.50-a-share takeover offer presented by a group led by U.S....

We often remind readers to pay attention to activist investors. That’s because they tend to look for the same kind of hidden assets we value. A firm can spin off or sell them to boost shareholder value. Here are two stocks that will benefit from activist pressure, but we see only one as a buy.


F5 NETWORKS INC....

Stock markets have rebounded from their COVID-19 lows in March 2020, and transportation firm XPO has decided now is the time to go ahead with the spinoff of its logistics business. XPO’s shares trade at lower multiples to earnings than its competitors, so the transaction should help unlock considerable value for investors....
Just over a year ago, 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 shares are down 5% since then, as COVID-19 forced restaurants to temporarily shut down....
CIMAREX ENERGY CO. $34 is a buy. The company (New York symbol XEC; Resources sector; Shares outstanding: 102.0 million; Market cap: $3.5 billion; Dividend yield: 2.5%; Takeover Target Rating: Medium; www.cimarex.com) produces and explores for natural gas and oil....

TOURMALINE OIL CORP. $18 is a hold. The company (Toronto symbol TOU; Resources sector; Shares outstanding: 272.3 million; Market cap: $4.9 billion; Dividend yield: 3.1%; Takeover Target Rating: Medium; www.tourmalineoil.com) is a Canadian oil and natural gas exploration, development and production company....

On May 22, 2019, apparel maker VF Corp. spun off its Lee and Wrangler jeans business into a separately traded public company called Kontoor Brands. Investors received one share in Kontoor for every seven VF shares they held.


Both VF and its spinoff have bounced back from their lows earlier this year when COVID-19 shut down many retail stores....