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

ECOLAB INC. $208 is a hold. The company (New York symbol ECL; Manufacturing sector; Shares outstanding: 285.4 million; Market cap: $59.4 billion; Dividend yield: 0.9%; Takeover Target Rating: Medium; www.ecolab.com) develops and markets chemicals and services for cleaning, pest elimination, sanitizing, and maintenance....
ALBERTSONS COMPANIES INC. $13 is a hold. The company (New York symbol ACI; Consumer sector; Shares outstanding: 479.0 million; Market cap: $6.2 billion; No dividend paid; Takeover Target Rating: Medium; www.albertsonscompanies.com) is one of the largest food retailers in the U.S....
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In the case of NortonLifeLock and CoreLogic, activist investors will likely push for takeovers....
In July 2015, Energizer Holdings split into personal-care products maker Edgewell and battery-manufacturer Energizer—a move that created two pure-play leaders in their markets.


Edgewell has dropped over 60% since the split, which has prompted it to re-focus on more profitable businesses....
Here’s an Excerpt from the June 16 issue of Advice for Inner Circle Pro Members:


“ETFs (Exchange-traded funds) may have a role to play in your portfolio. As with any investment, however, you need to approach them with a healthy sense of skepticism, if not an outright BS detector....
Yum Brands has jumped 54% since it spun off Yum China in November 2016. That spinoff stock, by the way, has soared 113%!


At the time of the split, investors received one share of the new firm for each Yum Brands share they held. We still see plenty of growth ahead for shareholders, particularly as both companies continue to re-open restaurants under easing COVID-19 restrictions....
ADT INC. $12 is a buy. The company (New York symbol ADT; Shares outstanding: 760.8 million; Market cap: $9.1 billion; Dividend yield: 1.2%; Takeover Target Rating: Medium; www.adt.com) is a leading provider of monitored security products and services to residential and commercial customers in the U.S....
THYSSENKRUPP AG (ADR) $7.52 is okay to hold, but only for aggressive investors. The company (U.S. over-the-counter bulletin board symbol TKAMY; Shares outstanding: 622.5 million; Market cap: $4.7 billion; Dividend suspended in 2020; Takeover Target Rating: Medium; www.thyssenkrupp.com) is a German industrial conglomerate with operations that manufacture steel, automotive components and warships....
On April 3, 2020, aerospace products maker United Technologies spun off its Otis (elevators) and Carrier (heating and air conditioning equipment) businesses as separate firms. For each share held, investors received 0.5 of a share in Otis and 1 share in Carrier.


Note—United Technologies then merged with defence contractor Raytheon Co....
FERRARI N.V. $195 is a buy for aggressive investors. The Italian luxury sports automaker (New York symbol RACE; Manufacturing sector; Shares outstanding: 184.8 million; Market cap: $36.0 billion; Dividend yield 0.6%; Takeover Target Rating: Medium; www.ferrari.com) took its current form in 2015 when parent company Fiat Chrysler Automobiles N.V....