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.

Read More Close
Spinoffs Library Archives
SUPERVALU INC. $32 (New York symbol SVU; Consumer sector; Shares outstanding: 38.6 million; Market cap: $1.2 billion; No dividends paid; Takeover Target Rating: High; www.supervalu.com) is a Minneapolis-based company that operates retail grocery stores and also acts as a wholesale distributor to independent grocers.


The stock jumped over 60% in July 2018 after the company accepted a $32.50-a-share cash takeover offer from grocery distributor United Natural Foods Inc....
CANNTRUST HOLDINGS $8.24 (Toronto symbol TRST; Consumer sector; Shares outstanding: 103.9 million; Market cap: $856.1 million; No dividends paid; Takeover Target Rating: Medium; www.canntrust.ca) is a Canadian-based producer of medical cannabis with distribution in Canada, Denmark and Australia....
ELI LILLY & CO. $105 (New York symbol LLY; Manufacturing & Industry sector; Shares outstanding: 1.1 billion; Market cap: $115.5 billion; Dividend yield: 2.1%; Takeover Target Rating: Low; www.lilly.com) develops, makes and markets drugs and animal-health products.


Lilly hopes to match the success Pfizer realized with its Zoetis spinoff (see pages 81 and 82) by setting up its Elanco Animal Health business as a separate company.


Using an initial public offering (IPO), Lilly will sell 20% of Elanco’s shares to the public....
GLAXOSMITHKLINE PLC (ADR) $42 (New York symbol GSK; Manufacturing & Industry sector; ADRs outstanding: 2.5 billion; Market cap: $105.0 billion; Dividend yield: 3.8%; Takeover Target Rating: Low; www.gsk.com) is a U.K.-based global health-care company that develops, makes and sells products in three main markets: pharmaceuticals, vaccines and consumer health care....
Pfizer’s shares have gained 50% in the five years since it used an initial public offering to set up its animal-drug business as Zoetis. It then offered its remaining shares to investors. The new company now plans to sell or spin off its consumer business, which could push the stock even higher.


Zoetis, which has seen its shares triple since the split, should continue to profit from rising levels of pet ownership.


PFIZER INC....
TILRAY INC. (Nasdaq symbol TLRY) is a Canadian medical marijuana producer, which began operating in 2013. It also sells related accessories. The company’s grow facilities are in Ontario, B.C. and Portugal.


Tilray recently filed the necessary forms with the U.S....
HUNTSMAN CORP. $31 (New York symbol HUN; Manufacturing & Industry sector; Shares outstanding: 239.2 million; Market cap: $7.4 billion; Takeover Target Rating: Lowest; Dividend yield: 2.2%; www.huntsman.com) is a leading producer of specialty chemicals....
On November 1, 2015, the old Hewlett-Packard Co. split into two firms—Hewlett-Packard Enterprise and HP Inc. For every share they held in the old HP, shareholders received one share in each of the new companies.


The old HP expected the computer services business (HP Enterprise) would outperform its PC and printer operations (HP)....
AMTRUST FINANCIAL SERVICES INC. $14.58 (Nasdaq symbol AFSI; Finance sector; Shares outstanding: 196.4 million; Market cap: $2.9 billion; Dividend yield: 4.7%; Takeover Target Rating: Highest; www.amtrustfinancial.com) is a New York-based insurer, offering specialty property and casualty coverage.


In March 2018, a private group offered to take AmTrust private at $13.50 a share....
ENERGEN CORP. $74 (New York symbol EGN; Resources sector; Shares outstanding: 97.4 million; Market cap: $7.2 billion; No dividend paid; Takeover Target Rating: Medium; www.energen.com) explores for oil and gas in Texas and New Mexico. It has reserves of 444 million barrels of oil equivalent and the potential for another 2.7 billion barrels for future development.


Billionaire investor Carl Icahn now owns 7.5% of Energen....