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
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....
SYMANTEC CORP. $20 (Nasdaq symbol SYMC; Manufacturing & Industry sector; Shares outstanding: 618.2 million; Market cap: $13.6 billion; Dividend yield: 1.6%; Takeover Target Rating: Medium; www.symantec.com) sells computer-security technology, including antivirus and email-filtering software, to businesses and consumers.


The stock is down 19.3% from its recent peak of $24.77 on April 17, 2019....
GAP INC. $18 (New York symbol GPS; Consumer sector; Shares outstanding: 378.0 million; Market cap: $6.8 billion; Dividend yield: 5.4%; Takeover Target Rating: Medium; www.gap.com) is a multi-brand apparel retailer based in San Francisco....
VALVOLINE INC. $19 (New York symbol VVV; Manufacturing & Industry sector; Shares outstanding: 188.2 million; Market cap: $3.6 billion; Dividend yield: 2.2%; Takeover Target Rating: Medium; www.valvoline.com) is a leading maker of motor oil, lubricants and other automotive chemicals such as antifreeze....
ELI LILLY & CO. $115 (New York symbol LLY; Manufacturing & Industry sector; Shares outstanding: 920.8 million; Market cap: $105.9 billion; Dividend yield: 2.2%; Takeover Target Rating: Low; www.lilly.com) is a leading developer of prescription drugs....
CONAGRA BRANDS INC. $29 (New York symbol CAG; Consumer sector; Shares outstanding: 485.9 million; Market cap: $14.1 billion; Dividend yield: 2.9%; Takeover Target Rating: Medium; www.conagra.com) makes packaged foods, including Chef Boyardee canned pasta, Hunt’s tomato sauce, Peter Pan peanut butter, Orville Redenbacher popcorn and Reddi-wip whipped cream.


Activist investor Jana Partners continues to hold roughly 3% of Conagra’s shares....
CAMPBELL SOUP CO. $41 (New York symbol CPB; Consumer sector; Shares outstanding: 301.2 million; Market cap: $12.3 billion; Dividend yield: 3.4%; Takeover Target Rating: Medium; www.campbellsoupcompany.com) recently completed a strategic review of its operations....
PERRIGO CO. PLC $44 (New York symbol PRGO, Manufacturing sector; Shares outstanding: 136.0 million; Market cap: $7.0 billion; Dividend yield: 1.0%; Takeover Target Rating: Medium; www.perrigo.com) took its current form in June 2013 when it merged with Irish-based drug maker Elan Corporation, plc....