One of the ways a company can try to unlock its own hidden value is by creating a separate company out of a corporate subsidiary. The parent company can either sell stock in the new company to the public, or spin it off—hand the stock out to its own investors.
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.
After many years of expanding through acquisitions—20 purchases since 2020—medical device maker Becton Dickinson is now narrowing its focus through spinoffs.
In April 2022, the company spun off its Diabetes Care business as embecta (see page 19). Investors received one share of embecta for every five… Read More
HOWARD HUGHES HOLDINGS INC. $75 is a hold. The company (New York symbol HHH; Manufacturing sector; Shares outstanding: 49.7 million; Market cap: $3.7 billion; No dividend paid; Takeover Target Rating: Medium; www.howardhughes.com) was originally part of billionaire businessman Howard Hughes’ real estate holdings. Today, it’s a Dallas-based developer of… Read More
You Can See Our Spinoff Stock Portfolio For February 2025 Here.
Why we like spinoffs so much
We think that spinoffs are the closest thing you can find to a sure thing for two main reasons:
1) The management of a parent company will only hand out shares… Read More
FLOWCO HOLDINGS INC. has filed paperwork with U.S. regulators for an initial public offering (IPO) of 17.8 million class A common shares at between $21.00 and $23.00 a share. The shares will trade on the New York exchange under the symbol “FLOC.” Insiders will control roughly… Read More
NORDSTROM INC. $24 is a hold. The retailer (New York symbol JWN; Consumer sector; Shares outstanding: 164.9 million; Market cap: $4.0 billion; Dividend yield: 3.2%; Takeover Target Rating: Highest; www.nordstrom.com) owns and operates 381 stores in the U.S.. Those locations sell upscale clothing and footwear.
The company has accepted a.. Read More
Despite owning some of the world’s best-known personal care brands, the shares of Edgewell are down over 60% since it became a separate company in July 2015.
However, a new cost-cutting plan should improve its profitability and let it pay down its high debt load. The… Read More
LENNAR CORP. $136 is a spinoff buy. The company (New York symbol LEN; Manufacturing & Industry sector; Shares outstanding: 271.2 million; Market cap: $36.9 billion; Dividend yield: 1.4%; Takeover Target Rating: Medium; www.lennar.com) is one of the largest homebuilders in the U.S.
The company will spin off its land acquisition business as… Read More
In October 2019, foodmaker Post sold shares of its BellRing Brands business to the public through an IPO. Since then, Post shares are roughly flat while BellRing has soared over 440%. We still like the long-term outlook for both.
POST HOLDINGS INC. $106 is a buy. The… Read More
Activists have targeted these two companies as they plan to replace their long-serving CEOs. While that pressure has helped spur their shares, we feel CAE is the better choice for your new buying.
CAE INC. $35 is a buy. The company (Toronto symbol CAE; Manufacturing & Industry sector;… Read More
FedEx has rebounded strongly after falling to $148 in September 2022. The gain is largely due to an activist investor, which has pushed the company to cut costs and improve efficiency.
After a strategic review, FedEx now plans to spin off its smaller trucking division as… Read More
IAC INC. $42 is a spinoff buy. The company, (Nasdaq symbol IAC; Consumer sector; Shares outstanding: 86.3 million; Market cap: $3.6 billion; No dividend paid; Takeover Target Rating: Lowest; www.iac.com) owns several online businesses, including U.S. news website The Daily Beast, family care information provider Care.com, and financial investing… Read More
For 2025, we have selected Honeywell as your #1 Spinoff Buy.
Following a long series of acquisitions over the past few decades, the company is now a major conglomerate with many businesses spread across a variety of industries. That makes Honeywell a prime candidate for a.. Read More
You Can See Our Spinoff Stock Portfolio For January 2025 Here.
Why we like spinoffs so much
We think that spinoffs are the closest thing you can find to a sure thing for two main reasons:
1) The management of a parent company will only hand out shares… Read More
BRAZIL POTASH CORP. $12 is a hold. The company (New York symbol GRO; Resources sector; Shares outstanding: 39.5 million; Market cap: $474.0 million; No dividends paid; Takeover Target Rating: Medium; www.brazilpotash.com) is a Toronto-based mineral exploration and development company. It is currently developing Autazes, a potash mining project in… Read More
J.M. SMUCKER CO. $113 is a hold. The company (New York symbol SJM; Consumer sector; Shares outstanding: 106.4 million; Market cap: $12.0 billion; Dividend yield: 3.8%; Takeover Target Rating: Medium; www.jmsmucker.com) is the largest maker of jams, jellies and peanut butter in the U.S. Its top brands include Smucker’s… Read More
On August 3, 2021, the old L Brands holding company (old New York symbol LB) split into two separate firms: Victoria’s Secret and Bath & Body Works. Investors received one new share of Victoria’s Secret for every three shares of L Brands they held. L.. Read More
KYNDRYL HOLDINGS INC. $36 is still a hold. The company (New York symbol KD; Manufacturing & Industry sector; Shares outstanding: 232.3 million; Market cap: $8.4 billion; No dividends paid; Takeover Target Rating: Medium; www.kyndryl.com) helps corporate and government clients manage their datacentres. On November 3, 2021, former parent company… Read More
Becton spun off its diabetes products business as embecta in 2022. Since then, the former parent is down 14%, while the new company has dropped 54%. However, both firms are taking steps that we expect to spur their earnings.
BECTON DICKINSON & CO. $221 is a.. Read More
HARMONIC INC. $13 is a hold. The company (Nasdaq symbol HLIT; Manufacturing & Industry sector; Shares outstanding: 116.5 million; Market cap: $1.5 billion; No dividend paid; Takeover Target Rating: Medium; www.harmonicinc.com) makes a variety of products that help manage video and Internet data traffic for telecommunication providers, cable TV… Read More
The shares of these two companies have languished in the past few years. Even so, these firms are resisting demands from activist investors for big changes, which will likely continue to hold back their stocks.
HENRY SCHEIN INC. $77 is a hold. The company (Nasdaq symbol HSIC; Manufacturing… Read More
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