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
YAMANA GOLD $5.11 is a precious metal buy. The gold miner (Toronto symbol YRI; Resources Sector; Shares outstanding: 950.4 million; Market cap: $4.9 billion; Dividend yield: 1.0%; Takeover Target Rating: Highest; www.yamana.com) lets you tap six gold mines, in Canada, Brazil, Chile and Argentina....
TENNECO INC. $10 is a buy for aggressive investors. The stock (New York symbol TEN; Manufacturing & Industry sector; Shares outstanding: 80.9 million; Market cap: $809.0 million; Dividend yield: 9.5%; Takeover Target Rating: Medium; www.tenneco.com) lets you tap a leading maker of auto parts....

We’ve long believed in the power of spinoffs to lift value for investors. Indeed, it’s why we were excited by the possibility that Archer Daniels would set up its Ethanol operations as a separate company and then hand investors shares in the new company. Now, however, the agri-giant has decided to sell that fuel business instead....
VERINT SYSTEMS INC. $589 is a spinoff buy. The software maker (Nasdaq symbol VRNT; Manufacturing & Industry Sector; Shares outstanding: 66.8 million; Market cap: $3.9 billion; No dividend paid; Takeover Target Rating: Medium; www.verint.com) plans to split the company into two separate, publicly traded businesses in early 2021.


The customer engagement business will have almost $1 billion in sales while its cyber intelligence business will have sales of about $500 million....
As we often remind investors, spinoffs are one of the best ways for companies to enhance investor value. Here are two stocks set to benefit from setting up smaller operations as separate firms.


IAC/INTERACTIVE CORP. $272 is a buy. The company (Nasdaq symbol IAC; Manufacturing & Industry Sector; Shares outstanding: 84.6 million; Market cap: $23.0 billion; No dividend paid; Takeover Target Rating: Lowest; www.iac.com) owns several online businesses, including U.S....
Long before 2020—indeed, for several decades—we’ve advised Canadian investors to spread their holdings out geographically between Canadian and U.S. stocks. Our view is that virtually all Canadian investors should have, say, 20% to 30% of their portfolios in U.S. stocks, with the remainder primarily in Canadian stocks....
Our approach to investing has a lot in common with activist investment firms. Like us, they’re always on the look out for companies with hidden assets that can be used to increase investor value. We see particularly strong value in a company’s ability to generate gains for its investors by spinning off some of its assets.


Below you’ll find two examples of well-known stocks that have attracted the attention of activist investors....
To unlock value for investors, on November 1, 2016, the old Alcoa Inc. split into two separate companies—Arconic Inc. (focused on manufactured aluminium products) and spinoff Alcoa Corp. (focused on bulk aluminum). For every three of the old shares investors held, they received three shares in Arconic and one in Alcoa.


Since the split, investors’ shares have gained an impressive 53%....
In addition to Danaher—our top spinoff pick for 2020—this month we highlight several other spinoff opportunities ready to deliver your portfolio enviable returns.


They include aluminum products maker Arconic, which now plans to break itself into two separate firms....
When selecting your #1 spinoff stock for 2020, we considered all recent spinoffs. But, we also considered the firms that did the actual spinning off. As a TSI subscriber, you already know the power of spinoffs to hand you gains that far exceed those of comparable stocks....