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
On June 1, 2018, Wyndham Worldwide (old New York symbol WYN)completed its spinoff of Wyndham Hotels. Investors received one share of the new company for each WYN share they held. The remaining firm then changed its name to Wyndham Destinations (New York symbol WYND).


The split left each company to concentrate on its core businesses, and we feel that brightens their outlook....
RIO TINTO PLC (ADR) $56 (New York symbol RIO; www.riotinto.com) is a major international mining group, based in the U.K. Its major products include aluminum, copper and diamonds.


The company continues to consider selling shares in its 58.7%-owned Iron Ore Company of Canada (IOC)....
IAMGOLD CORP. $4.51 (Toronto symbol IMG; Resources Sector; Shares outstanding: 450.7 million; Market cap: $2.0 billion; No dividends paid; Takeover Target Rating: Medium; www.iamgold.com) owns 41% of the Sadiola gold mine in Mali; 90% of the Essakane mine in Burkina Faso; 100% of the Westwood mine in Quebec; and 95% of the Rosebel mine in Suriname.


The stock has gained roughly 20% since the start of February 2019....
Ride-sharing firms Uber and Lyft will likely launch their initial public offerings sometime in 2019.


These firms connect riders with privately operated taxi cabs through a smartphone app. A passenger opens the app, enters their destination, and sees the approximate fare for their trip....
TRISURA GROUP LTD. $27 (Toronto symbol TSU; Finance Sector; Shares outstanding: 6.6 million; Market cap: $178.2 million; No dividends paid; Takeover Target Rating: Medium; www.trisura.com) offers insurance in three areas: Risk Solutions provides warranties for manufactured products; Surety Insurance guarantees that specific tasks are completed; and Corporate Insurance and Reinsurance offers policies to professionals to cover malpractice and defamation.


Brookfield Asset Management (Toronto symbol BAM.A) spun off Trisura in June 2017....
ARCOSA INC. $30 (New York symbol ACA; Manufacturing & Industry sector; Shares outstanding: 48.8 million; Market cap: $1.5 billion; Dividend yield: 0.7%; Takeover Target Rating: Medium; www.arcosa.com) makes construction materials (such as highway guardrails and gravel), inland barges, and energy equipment (such as electrical transmission towers and fuel storage tanks).


On November 1, 2018, railcar-products-and-services company Trinity Industries Inc....
PAPA JOHN’S INTERNATIONAL INC. $43 (New York symbol PZZA; Consumer sector; Shares outstanding: 31.5 million; Market cap: $1.4 billion; Dividend yield: 2.1%; Takeover Target Rating: Highest; www.papajohns.com) is the world’s third-largest pizza delivery company behind Domino’s Pizza (New York symbol DPZ) and Pizza Hut, part of Yum Brands Inc....
CAESARS ENTERTAINMENT CORP. $9.40 (Nasdaq symbol CZR; Consumer sector; Shares outstanding: 655.1 million; Market cap: $6.2 billion; No dividends paid; Takeover Target Rating: Medium; www.caesers.com) operates 49 casinos in 13 U.S....
NUANCE COMMUNICATIONS INC. $17 (Nasdaq symbol NUAN; Manufacturing & Industry sector; Shares outstanding: 285.4 million; Market cap: $4.9 billion; No dividends paid; Takeover Target Rating: Medium; www.nucance.com) specializes in speech and imaging technology....
ARCONIC INC. $18 (New York symbol ARNC; Manufacturing & Industry sector; Shares outstanding: 483.2 million; Market cap: $8.7 billion; Dividend yield: 0.4%; Takeover Target Rating: Medium; www.arconic.com) spun off Alcoa Corp....