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
KAR AUCTION SERVICES INC. $54 (New York symbol KAR; Manufacturing & Industry sector; Shares outstanding: 134.4 million; Market cap: $7.3 billion; Dividend yield: 2.6%; Takeover Target Rating: Medium; www.karauctionservices.com) sells used and salvaged vehicles at 250 physical auction sites in North America and over the Internet....
WYNDHAM WORLDWIDE CORP. $115 (New York symbol WYN; Consumer sector; Shares outstanding: 99.9 million; Market cap: $11.5 billion; Dividend yield: 2.3%; Takeover Target Rating: Medium; www.wyndhamworldwide.com) is one of the world’s largest hospitality companies, with over 8,400 franchised hotels across 80 countries and under 19 brands.


Wyndham continues to move forward with its plan to split its operations into two separate, publicly traded companies....
Many aggressive investors find the lure of stock options hard to resist. However, despite that appeal, the vast majority of investors lose money with options.


Call options give the holder, or buyer, the right to purchase the underlying security at a specified “strike” price up until a specified expiration date....
PENTAIR PLC $72 (New York symbol PNR; Manufacturing Sector; Shares outstanding: 178.3 million; Market cap: $12.8 billion; Dividend yield 2.0%; Takeover Target Rating: Medium; www.pentair.com) is a diversified industrial manufacturing company that sells to businesses in the food, water and energy markets.


On April 30, 2018, Pentair will spin off its electrical unit as nVent Electric plc....
On July 1, 2016, the old Hertz Global Holdings Inc. set up its car rental subsidiary as a separate firm (also called Hertz Global Holdings, New York symbol HTZ). It then handed shares in that new company to its investors. After the spinoff, the remaining equipment rental business changed its name to Herc Holdings and consolidated its shares on a 1-for-15 basis.


Since the split, Hertz has struggled and the stock is now down about 50%....
STITCH FIX INC., $20 (Nasdaq symbol SFIX; Consumer sector; Shares outstanding: 97.2 million; Market cap: $1.9 billion; Takeover Target Rating: Highest; No dividend paid; TSINetwork Rating: Extra Risk; www.stitchfix.com) is an online wardrobe stylist that provides its subscribers with regular shipments of clothes, shoes and accessories—all tailored to the customer’s tastes.


Stitch Fix went public with an IPO in November 2017 at $15 a share....

TEGNA INC. $12 (New York symbol TGNA; Consumer sector; Shares outstanding: 215.6 million; Market cap: $2.6 billion; Dividend yield: 2.3%; Takeover Target Rating: Medium; www.tegna.com) owns 46 TV stations....
NEWELL BRANDS INC. $27 (New York symbol NWL; Consumer sector; Shares outstanding: 485.2 million; Market cap: $13.1 billion; Divd. yield: 3.4%; Takeover Target Rating: Medium; TSINetwork Rating: Average; www.newellbrands.com) makes a variety of household goods such as pens, coffee makers and baby strollers....


AUTODESK INC. $136 (Nasdaq symbol ADSK; Manufacturing & Industry sector; Shares o/s: 220.3 million; Market cap: $30.0 billion; No divd. paid; Takeover Target Rating: Medium; TSINetwork Rating: Average; www.autodesk.com) is a leading design-software and digital-content provider for companies focused on architecture and land development, manufacturing, power distribution, telecommunications and media.


Activist investor Jana Partners has now taken a stake in the company and believes the stock should be at $160 per share.


Autodesk took a big drop in November 2017 after it reported a quarterly loss of $26.4 million, or $0.12 a share....
NXP SEMICONDUCTORS NV $122 (Nasdaq symbol NXPI; Manufacturing & Industry sector; Shares outstanding: 339.0 million; Market cap: $41.4 billion; No dividend paid; Takeover Target Rating: Medium; TSINetwork Rating: Average; www.nxp.com) is a computer chip company that provides high-performance mixed-signal and standard semiconductors....