When the markets go through periods of great gains, it is not uncommon to see companies start to take more radical efforts to increase their total return for shareholders. Some may go borrow money to pay a big dividend or to buy back large amounts of stock. Others may make transformative acquisitions. We have seen activist investors being very influential of late, but now we are seeing waves of de-mergers in the form of break-ups and spin-offs.
The idea behind a spin-off is very simple. Either a unit or operation of a company does not fit in with the broad effort, or the aim is to unlock value for shareholders. The end of 2013 is riddled with spin-offs, and we have some that are formal and some that are merely expected.
24/7 Wall St. wanted to evaluate some of the spin-offs currently taking place. The logic or reasoning is different on each, but the aim is obviously to drive greater total return to shareholders. We have given the value of the combined company today as a “total market value” in the analysis and named what each effort is. Some are named specifically and some are still pending as units. We have given a timing analysis as well.
The hardest part of any analysis is determining what net impact this will bring to shareholders. We call this the “value add” and have given a quick snippet of how or why we assess these, but we would be the first to admit that these numbers are highly subjective and different analysts will have a different expectation of what is truly added. The reason you do not see 50% upside is simple: if you break two companies apart, is the sum-of-the-parts suddenly worth twice as much as today? Very rarely.
Rather than listing these spin-offs alphabetically or by perceived upside, we have ranked them simply by total market value or market capitalization today. Hopefully this will show which spin-offs are larger and which will stand out systemically over smaller pending deals.
Lastly we have added in some recent spin-offs of size and even shown an ETF strategy around this effort. Here are six coming spin-offs that investors should pay attention to.