Spin-offs

[Cooper]

A spinoff is a new and separate company that's created when a parent company distributes shares in a subsidiary or business division to the parent company shareholders.

A stock I own symbol LH has completed a 1-4-1 spinoff symbol FTRE. Tomorrow it will start trading. I haven’t had much success with spin-offs but I’m hoping this will be a good move. 🙏

Anyone have a success story on spinoffs? 

[+ FrankR]

18 minutes ago, Cooper said:

A spinoff is a new and separate company that's created when a parent company distributes shares in a subsidiary or business division to the parent company shareholders.

A stock I own symbol LH has completed a 1-4-1 spinoff symbol FTRE. Tomorrow it will start trading. I haven’t had much success with spin-offs but I’m hoping this will be a good move. 🙏

Anyone have a success story on spinoffs? 

I own some Mondelez from when Kraft spun them off. Not sure it has been particularly successful. When I think successful spin off, I think about the breakup of Bell which became AT&T, Verizon etc

[Kevin Slater]

I held Phillip Morris back in the day, which has subsequently turned into shares of Altria, Phillip Morris International, Kraft and Mondelez.  I suspect ten or so of my holdings are the results of spinoffs from previous, larger entities which I held.

Wall Street seems to be waiting for Amazon to split off Amazon Web Services under the presumption that the two parts would grow faster if separated.  I expect the stock will get a very healthy bump the day that's announced.

Kevin Slater

[handiacefailure]

I've only had a few spin off and they weren't that successful.   A friend of mine owned McD's stock when they spun off Chipolte and IIRC it was successful for him.

I track all my investments in quicken and whenever I have a spinoff I make sure to back up the file before having the spinoff entered.   I always do all my dividends in a DRIP and it enters a spinoff in quicken its uses the DRIP shares as a separate entry and I've have had a couple times where I didn't do the entry right and had to reinstall my backup data file

 

 

[mike carey]

It's worth bearing in mind that you can't (or rather shouldn't) judge whether it's been 'successful' only on what happens to the entity that was spun off. You need to consider the total value of the spin-off and the parent company and also what the stated (or perhaps unstated) aims of the board were in splitting the company. The spin off may have operated in different market segments or had a different risk profile to the main company. Either of those could have made it difficult to manage the combined entity. If the proposal to spin off a division into a new company is touted as increasing the value of the residual company you can reasonably be cautious about what that means for the spin-off. Still, it's possible for both to do better apart than they would together.

After any split, you still own the same proportion of the total assets of the separate companies as you did of the original combined entity. BUT they are now separate companies and you should consider their place in your portfolio on their separate merits, and not let their history of being the one company influence you.

[Cooper]

Do/did any of you own AT&T (T)?

Last year T did a spinoff and started Warner Bros Discovery Inc (WBD). YTD down over 50%. Definitely, not a success story. 😞 

10 hours ago, handiacefailure said:

I've only had a few spin off and they weren't that successful.   A friend of mine owned McD's stock when they spun off Chipolte and IIRC it was successful for him.

 

 

 

[jawjateck]

8 hours ago, Cooper said:

Do/did any of you own AT&T (T)?

Last year T did a spinoff and started Warner Bros Discovery Inc (WBD). YTD down over 50%. Definitely, not a success story. 😞 

 

I owned T going into the WBD spinoff. I immediately sold all WBD shares in the low 20s. I eventually sold T around 20. I made a little money but only because of my timely trading. If I continued to hold the shares in T and WBD today, I would have a sizable unrealized loss in my account. 

GE spunoff GEHC. I sold GEHC immediately. GE has had a great year. I finally sold all my GE shares about a month ago, satisfied with my gain in it. Sometimes, these spinoffs are successful. Often, they are attempts by the CEO and board to juice stock gains in companies that have been poorly managed for years. My trading decisions, luck and timing made money for me in these examples. But I've had spinoffs that were dogs, finally had to cut 'em loose and admit the investment was a mistake.

[Beancounter]

I received WBD spinoff shares from T.  Held them for a little while but eventually sold them at a slight loss.  I continue to hold the T shares but were I to sell them I would take a substantial loss.  I’ve owned T for decades now and simply use the dividends to support this hobby.  Of course, my T dividends took a hit after the spinoff as the dividend per share was slashed.  Still, the dividends provide more than enough to enjoy several hires a year.  

[+ augustus]

I have done well with the AbbVie spinoff from Abbott.  Theoretically a spinoff allows the pieces of a corporation to trade at higher valuations than they do trapped inside the company, where they might not fit together properly.  But there are other factors, such as the spinoff being loaded with debt.  Not all spinoffs go well, but we generally don't have much say in the matter even as shareholders.  

[jawjateck]

IBM spunoff KD because it was the worst division in a crappy conglomerate. I immediately sold those shares. That was a good decision too. KD isn't profitable and the shares have been awful ever since.

[mike carey]

2 minutes ago, jawjateck said:

IBM spunoff KD because it was the worst division in a crappy conglomerate. I immediately sold those shares. That was a good decision too. KD isn't profitable and the shares have been awful ever since.

That's a perfect example of what I said earlier. You need to understand why the spin-off happened. In this case the spin-off was unambiguously successful. It threw a bad business division out of the parent company, just what it appears it was aiming to do.

In a sense, a conglomerate spinning off a poorly performing division is the equivalent of a mutual fund selling a poorly performing stock. If you stay with the conglomerate, or with the mutual fund, you benefit from a diversity of its holdings and lose the dead weight of the poorly performing division or stock. As long as, in the case of the spun-off entity you divest yourself of its stock forthwith.

[+ stevenkesslar]

On 7/6/2023 at 7:03 AM, jawjateck said:

IBM spunoff KD because it was the worst division in a crappy conglomerate. I immediately sold those shares. That was a good decision too. KD isn't profitable and the shares have been awful ever since.

Then again, the opposite can happen.   Baxter spun off Edward Lifesciences in 2000.  All Baxter owners got a share of EW for every five they owned of BAX.  I don't know all the details about possible splits.  But looking at the charts EW was worth a bit over $1 a share back in 2000 when the spin off happened.  And it peaked at about $130 a share at the top of the bubble in 2022.  A 2015 spinoff, Baxalta, didn't do anywhere near as well.  But it did okay.

Our mutual friend Epigonos was kind enough to invite my Mom for dinner years ago, back when they were both living.  I told him the story I love telling about how Mom was the smartest investor in our family.  She bought $1000 of Baxter shares around 1984.  And didn't touch them other than reinvesting dividends.  EW split off in 2000.  So she ended up with shares of that, too.  That was pretty much it for Mom and stocks.  My Dad and I sold most of her shares in the late 2010's to pay for her nursing home care.  The rest we decided should go to her grandchildren.  By my calculations she ended up earning about $75,000 out of a single $1,000 stock investment.  I think the spin off EW alone brought in something like $20,000 when we sold it, off stock that was kinda sorta free.  

I calculated it ended up being something like a 15 % a year return on investment. Not as good as Apple.  But not bad.  Turns out she was the smartest investor of all of us.  For sure better than my Dad, and his low interest CDs.  Blame it on the Fed, I guess.  Eppy and Mom laughed when I told it that way.  And she loved his lasagna. 😍

On 7/4/2023 at 10:51 AM, Cooper said:

Anyone have a success story on spinoffs? 

I never heard of LH before reading this.  But it sounds in the ballpark of BAX and EW.   Hope you do as well as my Mom.

To me her experience is a great story about buy and hold investing.  But also about investing in solid American innovation.  Which is why one of my Dad's business buddies advised her to buy the stock in the first place.  Here's Baxter's own PR about their innovation.  They actually had a bad year last year, which they blamed in part on an acquisition.   Regardless, I bought a bunch of it recently at $40 a share in my Mom's honor.

Edited July 9, 2023 by stevenkesslar