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
CAMPBELL SOUP CO. $40 (New York symbol CPB; Consumer sector; Shares outstanding: 300.7 million; Market cap: $12.0 billion; Takeover Target Rating: Medium; Dividend yield: 3.5%; www.campbellsoupcompany.com) makes a variety of food products under the brands Campbell’s Soup, Pepperidge Farm, V8, Bolthouse Foods and others.


Activist investor Daniel Loeb, through his Third Point hedge fund, has teamed up with George Strawbridge Jr., the grandson of Campbell’s founder John Dorrance....
Chemical giant DowDuPont continues to plan for its split into three new businesses, following last year’s big merger.


The stock has suffered in the past few months over concerns trade disputes could slow global growth. Cyclical industrial manufacturers, such as automakers, are the company’s major customers and they depend on that growth.


However, DowDuPont’s upcoming breakup should help unlock significant value for its shareholders.


DOWDUPONT INC....
YETI HOLDINGS INC. (to trade on New York under the symbol YETI) makes premium coolers, drinkware and clothing for campers, boaters and hunters. It sells those products through national retailers such as Dick’s Sporting Goods, Bass Pro Shops, and Ace Hardware....
MACK-CALI REALTY CORP. $20 (New York symbol CLI; Shares outstanding: 90.3 million; Market cap: $1.8 billion; Dividend yield: 4.0%; Takeover Target Rating: Highest; www.mack-cali.com) is a New Jersey-based real estate investment trust that owns, manages and develops office and apartment properties in the Northeastern U.S....
ALTAGAS LTD. $21 (Toronto symbol ALA; Shares outstanding: 267.4 million; Market cap: $5.6 billion; Dividend yield: 10.4%; Takeover Target Rating: Medium; www.altagas.com) processes, transports, stores and markets natural gas for producers....
ELANCO ANIMAL HEALTH INC. $33 (New York symbol ELAN; Shares outstanding: 365.6 million; Market cap: $12.1 billion; No dividend paid; Takeover Target Rating: Medium; www.elanco.com) makes medications for both livestock and companion animals (pets).


On September 21, 2018, Eli Lilly (New York symbol LLY) set Elanco up as a separate company and sold 19.8% of its shares through an initial public offering at $24 each....
FRONTDOOR INC. $39 (Nasdaq symbol FTDR; Shares outstanding: 84.8 million; Market cap: $3.3 billion; No dividend paid; Takeover Target Rating: Medium; www.frontdoorhome.com) provides contracts to cover the repair costs of home appliances and major systems such as heating and cooling....
STARBUCKS CORP. $59 (Nasdaq symbol SBUX, Shares outstanding: 1.4 billion; Market cap: $82.6 billion; Dividend yield: 2.5%; Takeover Target Rating: Medium; www.starbucks.com) is a leading seller and roaster of specialty coffee.


Activist investor Bill Ackman recently revealed that his Pershing Square hedge fund had made a $900 million investment in Starbucks....
OWENS-ILLINOIS INC. $19 (New York symbol OI; Shares outstanding: 159.3 million; Market cap: $3.0 billion; No dividend paid; Takeover Target Rating: Medium; www.o-i.com) is the world’s largest manufacturer of glass bottles....
MADISON SQUARE GARDEN CO. $292 (New York symbol MSG; Shares outstanding: 23.7 million; Market cap: $6.9 billion; No dividend paid; Takeover Target Rating: Lowest; www.msg.com) is a sports and entertainment company that owns the New York Rangers hockey team, the NBA’s New York Knicks and several other sports franchises....