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
DUPONT DE NEMOURS, INC. $71 (New York symbol DD; Manufacturing & Industry sector; Shares outstanding: 747.5 million; Market cap: $53.1 billion; Dividend yield: 1.7%; Takeover Target Rating: Lowest; www.dupont.com), formerly known as DowDuPont, took its current form on June 1, 2019, when it set up Corteva (its agriculture business) as a separate company....
KAR AUCTION SERVICES INC. $25 (New York symbol KAR; Manufacturing & Industry sector; Shares outstanding: 133.4 million; Market cap: $3.3 billion; Dividend yield: 5.6%; Takeover Target Rating: Medium; www.karauctionservices.com) sells used and salvaged vehicles at 250 physical auction sites in North America and over the Internet....
ENSIGN GROUP INC. $58 (Nasdaq symbol ENSG; Consumer sector; Shares outstanding: 53.5 million; Market cap: $3.1 billion; Dividend yield: 0.3%; Takeover Target Rating: Medium; www.ensigngroup.net) provides skilled nursing and senior living services, physical, occupational, and speech therapies, along with home health and hospice services....
POST HOLDINGS INC. $107 (New York symbol POST; Consumer sector; Shares outstanding: 73.3 million; Market cap: $7.8 billion; No dividends paid; Takeover Target Rating: Medium; www.postholdings.com) is a leading maker of packaged foods....
QEP RESOURCES INC. $6.32 (New York symbol QEP; Resources sector; Shares outstanding: 238.0 million; Market cap: $1.5 billion; No dividend paid; Takeover Target Rating: Highest; www.qepres.com) produces oil and natural gas from properties in both the Permian (Texas) and Williston basins (North Dakota).


In February 2019, QEP began a strategic review of its businesses after the planned sale of its Williston Basin assets fell through due to declining oil prices.


The company has now reportedly received a takeover offer worth $2 billion from activist investment firm Elliott Management....
Demand for chemicals follows the ups and downs of the industrial sector—in other words, it’s cyclical. With the recent slowdown in the global economy, shares of Huntsman and its former subsidiary Venator are also down in the last year. Still, both are leaders in their markets and are poised to rebound strongly on positive U.S.-China trade news.


HUNTSMAN CORP....
MACK-CALI REALTY CORP. $23 (New York symbol CLI; Manufacturing & Industry sector; Shares outstanding: 90.3 million; Market cap: $2.1 billion; Dividend yield: 3.4%; Takeover Target Rating: Highest; www.mack-cali.com) is a New Jersey-based real estate investment trust that owns, manages and develops 74 properties in the Northeastern U.S....
GENESEE & WYOMING INC. $110 (New York symbol GWR; Manufacturing sector; Shares outstanding: 56.5 million; Market cap: $6.2 billion; Takeover Target Rating: Highest; No dividend paid; www.gwrr.com) owns and operates 120 railroads across North America, Australia, and Europe....
AltaGas is now focused on high-growth U.S. opportunities. That follows the company’s move to set up its Canadian businesses as AltaGas Canada and sell shares in the new firm to the public. The proceeds helped AltaGas pay for a big U.S. utility to spur its cash flow.



The company will likely sell its remaining stake in AltaGas Canada rather than hand it to shareholders as a special dividend....
MOHAWK GROUP HOLDINGS INC. $6.50 (Nasdaq symbol MWK; Manufacturing & Industry sector; Shares outstanding: 17.5 million; Market cap: $113.8 million; No dividend paid; Takeover Target Rating: Medium; www.mohawkgp.com) makes a variety of consumer appliances, including home ice makers, dehumidifiers, air conditioners, and beauty-related products.


The company has developed an exclusive software platform that uses artificial intelligence to study customer purchasing habits and other data....