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
DANAHER CORP. $104 (New York symbol DHR; Manufacturing & Industry sector; Shares outstanding: 700.9 million; Market cap: $72.9 billion; Dividend yield: 0.6%; Takeover Target Rating: Medium; www.danaher.com) makes precision-testing equipment and tools....

We first recommended Lamb Weston as a spinoff buy at $47 in our first issue of TSI Spinoffs, Takeovers and Special Situations. Since then—October 2017—the stock has risen 49%.


We feel Lamb Weston has more gains ahead as it continues to expand sales and profits....
BEYOND MEAT (Nasdaq symbol BYND) designs its plant-based “beef,” “pork” and “chicken” to taste like real meat. This includes simulating the texture and appearance of meat.


Beyond Meat plans to launch an initial public offering (IPO) on the Nasdaq exchange....
AUTOMATIC DATA PROCESSING INC. $130 (Nasdaq symbol ADP; Manufacturing & Industry sector; Shares outstanding: 440.5 million; Market cap: $57.3 billion; Dividend yield: 2.4%; Takeover Target Rating: Medium; www.adp.com) is one of the world’s largest outsourcing human resources firms....
POST HOLDINGS INC. $90 (New York symbol POST; Consumer sector; Shares outstanding: 66.6 million; Market cap: $6.0 billion; No dividends paid; Takeover Target Rating: Medium; www.postholdings.com) is a leading maker of packaged foods....
STELCO HOLDINGS $15 (Toronto symbol STLC) is a steel producer focused on high-strength steel for the automotive and construction industries. It went public in November 2017 at $17.


In November 2018, Fairfax Financial Holdings (Toronto symbol FFH) announced that it had taken 13.7% ownership interest in the Hamilton, Ontario, steel producer....
HERTZ GLOBAL HOLDINGS INC. $15 (New York symbol HTZ; Consumer sector; Shares outstanding: 84.1 million; Market cap: $1.3 billion; No dividends paid; Takeover Target Rating: Medium; www.hertz.com) rents cars and trucks under the Hertz, Dollar and Thrifty banners at 10,200 locations in over 150 countries....
DETOUR GOLD CORP. $10 (Toronto symbol DGC; Resources sector; Shares outstanding: 175.0 million; Market cap: $1.8 billion; No dividends paid; Takeover Target Rating: Highest; www.detourgold.com) is an Ontario-based gold producer that owns 100% of the Detour Lake open-pit gold mine in the north of the province....
ARCONIC INC. $18 (New York symbol ARNC; Manufacturing & Industry sector; Shares outstanding: 483.2 million; Market cap: $8.7 billion; Dividend yield: 1.3%; Takeover Target Rating: Medium; www.arconic.com) is a leading maker of engineered-aluminum products for cars and jet engines.


On November 1, 2016, Arconic spun off Alcoa Corp....
ZAYO GROUP HOLDINGS INC. $22 (New York symbol ZAYO; Manufacturing & Industry sector; Shares outstanding: 236.6 million; Market cap: $5.2 billion; Takeover Target Rating: Highest; No dividends paid; www.zayo.com) operates a fibre network across North America and Europe that stretches more than 209,215 kilometres....