05-12-2014, 09:17 PM
(This post was last modified: 05-12-2014, 10:15 PM by 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.
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.
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.
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“While the dividend itself is merely a rearrangement of equity, over time it's more like owning an apple tree. The tree grows the apples back again and again and again, and the theoretical value of the tree doesn't change just because of when the apples are about to fall.” - earthtodan
“While the dividend itself is merely a rearrangement of equity, over time it's more like owning an apple tree. The tree grows the apples back again and again and again, and the theoretical value of the tree doesn't change just because of when the apples are about to fall.” - earthtodan