Spin-offs

[rnsmth]

KMB is going to spin off its health care business. This makes at least three of my companies planning spin-offs - GE and BAX are the other two.

Do not have much experience with this.

http://finance.yahoo.com/news/kimberly-c...04400.html

Quote:Consumer products giant Kimberly-Clark Corporation ( KMB) has recently filed a registration statement with the Securities and Exchange Commission for the planned spin off its health care business, which was announced in Nov 2013.

The spin-off is expected to be complete by the end of this year. The new company will be named as Halyard Health, Inc. and will be headquartered in Alpharetta, GA, near Atlanta.

Post spin-off, Halyard will become a separate publicly traded company with about $1.7 billion in annual sales, and is expected to trade on the New York Stock Exchange. It already has a market leading position in both surgical and infection prevention products and medical devices. Robert Abernathy – the president of Kimberly-Clark's Europe group – will become the CEO of the new healthcare company.

The spin-off will involve a tax-free distribution of 100% of Halyard Health's common stock to Kimberly-Clark shareholders. The distribution is expected to be complete at the end of the third quarter or in the fourth quarter of 2014, subject to market and other regulatory approvals. Prior to the spin off, Kimberly-Clark will receive a cash distribution from Halyard Health, which will be utilized to repurchase shares.

[Kerim]

My only spin-off experience so far was COP spinning off PSX. That has worked out beautifully so far!

Before I became a DG investor, I held a small pile of MO. Bought it when it was in the 20s, and then sold it in the 60s. Though I was soooo smart. Then it continued to grow and grow and grow while spinning off winner after winner. Alas.

[Dividend Watcher]

I think it was Peter Lynch who talked about spinoffs from successful companies. Yup, couldn't go further until I found it in Chapter 8 of One Up on Wall Street.

Quote:Large parent companies do not want to spin off divisions and then see those spinoffs get into trouble, because that would reflect back on the parents. Therefore, the spinoffs normally [emphasis mine] have strong balance sheets and are well-prepared to succeed as independent entities. And once these companies are granted their independence, the new management, free to run its own show, can cut costs and take creative measures that improve the near-term and long-term earnings.

From what I've observed since the time I've read this many years ago, a majority of the time, the spinoff generally performs similarly to the parent. If a go-go growth company is the parent, the spinoff tends to try to keep up with the parent, sometimes even surpassing it. A well-run dividend growth company, which I've paid much more attention to lately, seems to produce a spinoff with similar values; ABT/ABBV and COP/PSX are two that come immediately to mind not to mention the many permutations related to PM/MO/KRFT. That's not to say you don't get some flops but if you take a look at the financials of both after the spin off, you should get an idea whether there's some value to be found.

The BAX deal sounds interesting. The GE -- not so much to me. The KMB spinoff might also be interesting. We'll see.