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
PERRIGO CO. PLC $73 (New York symbol PRGO, Manufacturing sector; Shares outstanding: 136.8 million; Market cap: $10.0 billion; Dividend yield: 1.0%; Takeover Target Rating: Medium; www.perrigo.com) now plans sell or spin off its topical pharma unit....
PepsiCo’s $3.2 billion U.S. takeover bid for SodaStream International Ltd.—maker of the world’s leading home carbonation system—highlights growing consolidation in the food-and-beverage industry.


Big players are eager to spur growth—either by swapping their sugary offerings for more healthful trendy treats or by gobbling up and then streamlining smaller competitors....
TRISURA GROUP LTD. $27 (Toronto symbol TSU; Finance Sector; Shares outstanding: 6.6 million; Market cap: $178.2 million; Takeover Target Rating: Medium; No dividends paid; 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....
Clothing maker VF Corp. surprised investors in August when it announced plans to spin off its Lee jeanswear business as a separate company. That pushed the stock up to a new all-time high of $97, although it has since moved down slightly.


We feel VF has room to move higher, particularly as it focuses on its faster-growing brands....
AVALARA INC. $42 (New York symbol AVLR; Manufacturing & Industry sector; Shares o/s: 66.5 million; Market cap: $2.8 billion; No dividend paid; Takeover Target Rating: Medium; www.avalara.com) makes software that helps businesses calculate, collect and remit retail sales taxes....
BHP BILLITON LTD. (ADR) $48 (New York symbol BHP; Resources sector; ADRs outstanding: 1.6 billion; Market cap: $76.7 billion; Dividend yield: 4.6%; Takeover Target Rating: Medium; www.bhpbilliton.com) is a leading producer of iron ore, oil and natural gas, copper and coal.


In response to pressure from activist investor Elliott Management, BHP has sold its onshore U.S....
CHEMED CORP. $319 (New York symbol CHE; Manufacturing sector; Shares outstanding: 16.1 million; Market cap: $5.1 billion; Dividend yield: 0.4%; Takeover Target Rating: Medium; www.chemed.com) operates two wholly owned subsidiaries: VITAS Healthcare and Roto-Rooter....
WORKHORSE GROUP INC. $1.04 (Nasdaq symbol WKHS; Manufacturing & Industry sector; Shares outstanding: 42.1 million; Market cap: $43.8 million; Takeover Target Rating: High; www.workhorse.com) makes electrically powered trucks and unmanned drones....
DANAHER CORP. $101 (New York symbol DHR; Manufacturing & Industry sector; Shares outstanding: 696.6 million; Market cap: $70.4 billion; Dividend yield: 0.6%; Takeover Target Rating: Medium; www.danaher.com) makes precision-testing equipment and tools....
SEMPRA ENERGY $115 (New York symbol SRE; Utilities Sector; Shares outstanding: 273.5 million; Market cap: $31.5 billion; Dividend yield: 3.1%; Takeover Target Rating: Medium; www.sempra.com) distributes electrical power and natural gas to over 45 million customers in Southern California, Texas, Chile and Peru....