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
GENERAL ELECTRIC CO. $12 (New York symbol GE, Shares outstanding: 8.7 billion; Market cap: $104.4 billion; Dividend yield: 4.0%; Takeover Target Rating: Low; www.ge.com) has replaced its CEO, John Flannery, with Larry Culp—the former CEO of Danaher Corp....

On June 1, 2018, Wyndham Worldwide completed its spinoff of Wyndham Hotels (see page 82). Shareholders received one share of the new company for each share they held. The name of the remaining firm was then changed to Wyndham Destinations.


The split will let both firms concentrate on their core businesses....
Studies show that both a spinoff and its parent company perform better than comparable firms for several years following their split. That’s especially so with industry leaders like these two.


WYNDHAM DESTINATIONS $42.92 (New York symbol WYND; TSI Rating: Extra Risk) (973-753-6000; www.wyndhamdestinations.com; Shares outstanding: 99.4 million; Market cap: $4.3 billion; Dividend yield: 3.8%) was formerly Wyndham Worldwide (WYN)....
FIRSTSERVICE CORP. $109.91 (Toronto symbol FSV; TSINetwork Rating: Extra Risk) (416-960-9500; www.firstservice.com; Shares outstanding: 34.6 million; Market cap: $4.0 billion; Dividend yield: 0.7%) set up its commercial real estate business, Colliers International Group, as a separate company on June 1, 2015....
EVENTBRITE INC. (New York symbol EB; www.eventbrite.com) makes cloud-based software and websites that help organizers of concerts and other live events promote their shows and sell tickets. The company charges a per-ticket fee for that service....
EDGEWELL PERSONAL CARE CO. $48 (New York symbol EPC; Consumer sector; Shares o/s 54.0 million; Market cap: $2.6 billion; No dividends paid; Takeover Target Rating: Highest; www.edgewell.com) is a consumer products company. Its brands include Schick, Edge, Hawaiian Tropic and Wet Ones....
FMC CORP. $88 (New York symbol FMC; Manufacturing sector; Shares outstanding: 134.6 million; Market cap: $11.8 billion; Takeover Target Rating: Medium; Dividend yield: 0.8%; www.fmc.com) is a diversified chemicals manufacturing company based in Philadelphia, with clients in the agricultural, industrial and consumer markets.


In November 2017, FMC acquired part of the crop protection business of DowDuPont (New York symbol DWDP)....
NEVSUN RESOURCES LTD. $5.76 (Toronto symbol NSU; Shares outstanding: 302.6 million; Market cap: $1.7 billion; Dividend yield: 0.3%; Takeover Target Rating: Highest; www.nevsun.com) is the majority owner of the Timok copper/gold projects in Serbia as well as the Bisha copper/zinc mine in Eritrea.


The company has now accepted a $6.00-a-share all-cash takeover offer from Chinese mining firm Zijin Mining Group Co....
HEXO CORP. $8.10 (Toronto symbol HEXO; Shares outstanding: 198.3 million; Market cap: $1.6 billion; No dividend paid; Takeover Target Rating: Highest; www.thcx.com) is a Canadian-based producer and distributor of medical cannabis with production facilities in Quebec....
TILRAY INC. $214 (Nasdaq symbol TLRY; Manufacturing sector; Shares outstanding: 93.4 million; Market cap: $20.0 billion; No dividends paid; Takeover Target Rating: Medium; www.tilray.com) is a Canadian medical marijuana producer, which began operating in 2013.


The company sold 10.35 million common shares at $17.00 a share U.S....