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

PFIZER INC., $37.05, is a buy. Investors in the company (New York symbol PFE; Manufacturing & Industry sector; Shares outstanding: 5.5 billion; Market cap: $203.8 billion; Dividend yield: 3.8%; TSI Takeover Rating: Lowest; www.pfizer.com) will now benefit from the spinoff of its Upjohn business—the firm’s off-patent and generic drug unit....

Big investors like pension funds tend to prefer pure-play companies with simple-to-understand businesses. As a result, firms with more diverse operations tend to attract activist investors who pressure them to spin off some of their businesses as a way of boosting value for investors.


Emerson Electric is a good example of a diverse firm that has attracted activist attention; specifically....

Activist investing has surged in the past decade, led by a relatively small but powerful group of hedge funds. They follow different activist investing strategies, but all have the same goal: wringing the greatest possible profits from the company’s assets.


This can include forcing a change in the board of directors or management....

Under pressure from activist investors, these two companies are taking big steps to boost their value for all investors. We feel now is a particularly good time for you to buy.


MARATHON PETROLEUM CORP., $61.80, is a spinoff buy. The stock (New York symbol MPC; Resources sector; Shares o/s: 649.3 million; Market cap: $40.1 billion; Divd....

OCCIDENTAL PETROLEUM CORP., $38.48, is okay for aggressive investors to hold. The company (New York symbol OXY; Resources sector; Shares o/s: 893.3 million; Market cap: $34.4 billion; Divd. yield: 8.3%; Takeover Target Rating: Medium; www.oxy.com) paid $35.7 billion (81% cash, 19% stock) for oil producer Anadarko in August 2019.


Billionaire investor Carl Icahn opposed the merger....

Investors in these two Consumer-sector firms have seen recent share price gains—one is the result of a takeover offer; the other is due to a promising restructuring plan.


These positive developments bode well for your long-term returns, but we suggest you hold off on new buying at this time....

In July 2015, Energizer Holdings split into personal-care products maker Edgewell and battery-manufacturer Energizer—a move that elevated them to pure-play leaders in their markets. It also enhanced investor prospects.


We feel Edgewell’s recent deal to buy online razor company Harry’s will further pay off for investors....

We have often heard from investors who assumed their brokers had their best interests at heart before learning otherwise. Some then shopped around for better stock-trading advice from a new broker. Of course, others chose instead to start investing without one.


Buying and selling online is a great way of buying stocks without a broker and saving money on commissions.


Some investors may look at online trading as a fairly quick and convenient way to build wealth....

Welcome to your latest issue of Spinoffs, Takeovers and Special Situations! This month, we update spinoff opportunities poised to deliver strong, long-term returns for investors. They include Trisura (left), Edgewell and Marathon Petroleum.


In addition, we provide you with key analysis of stocks now in the crosshairs of activist investors—and the business media....
We often remind investors that patience is a key part of the Successful Investor approach to spinoff gains. Many new companies will move sideways for their first few years until they build up a history of revenue and earnings, and attract the attention of brokers.



A fine example is Trisura Group, a little-known insurer that Brookfield Asset Management spun off in mid-2017....