Spin-offs are a standard method employed by companies who need to dump divisions that are performing poorly.  Ownership of these spin offs is passed on to the unfortunate shareholders of the parent company, leaving the shareholders with the gift of ownership of a business that often has little value.

Under some circumstances corporate boards make a decision to sell branded businesses which have retained much of their value but are no longer a good fit for the evolved core business.
 
Some of the most iconic companies in the world have been cast off by their parent firms. The most recent highly-visible example is GE’s (GE) plans to wash its hands of its industrial and appliance divisions which include the toaster oven and washer-dryer products which have made GE a household name since the 1950s.

24/7 Wall St has compiled as list of famous companies that were sold by their parents or now exist as stand- alone operations.

GE’s (GE) appliance division has been part of the company since 1907 and is now on its way out, part of the conglomerate’s fantastic plan to keep only its best businesses under its umbrella.  "Appliances" should net GE $5 billion. GE brought US consumers their first air conditioners, electric can openers and electric ranges in this famous division.  Eighty years of branding will be sold off to the highest bidder, and the buyer may not even be an American company.

What would the laundry detergent market be without "All" and "Wisk"? These brands have been part of the Unilever family, until now that is. Unilver will hold on to some of its other sterling names including Lipton and Ben & Jerry’s, but private equity firm Vestar Capital Partners will put up $1.45 billion to take the Unilever North American laundry detergent business and combine it with  a company which also owns the "White Rains" brand.

Exxon Mobil (XOM) may be the second largest company in the Fortune 500, but how many people would know much about the company if it were not for its 12,000 gas stations with the "Winged Horse" logo and "Tiger in the Tank" slogan. While many of the outlets are already owned by individual distributors, Exxon is disposing of every station it owns. The company says the margins are too poor with gas prices near $4. It intends to focus on exploration and oil refining.

"Dr. Pepper" traces its roots as one of America’s most famous soft drinks back to 1885. The brand still has its own museum in downtown Waco, Texas, a city perhaps better known now for cults instead of beverages. Cadbury Schweppes spun-off the operation, which includes 7Up and Snapple, to shareholders and it now trades as Dr. Pepper Snapple Group (DPS). Cadberry was astute. The stock in the new company is off 15% over the last three months.

Kinkos has been a part of the US small-business landscape since 1970, when it was founded by Paul Orfalea and nicknamed for his curly hair. After being sold to private equity firm Clayton, Dubilier & Rice, the office printing-supply company was pawned off again to FedEx (FDX) in 2004 for $2.4 billion. FedEx kept the name until earlier this year when it decided it would build its own branding by calling the operation and retail outlets FedEx Office.

Almost no one knows that Motorola (MOT) is in the home set-top and bar-code scanning businesses. The electronics company invented the car radiotelephone in 1946 and began its TV business in 1947. In 1983, Motorola created the world’s first commercial handheld cellular phone. It exited the TV business years ago, leaving it as a cellular phone business, at least in the public’s mind. Motorola has been crushed in the handset division, unable to duplicate the success of its Razr model which helped the company to a 22% global market share three years ago. It has lost half of that share and in the second quarter of this year Motorola’s cell-phone operation suffered a 22% revenue drop to $3.3 billion and lost $346 million. Motorola plans to spin-off the handset division, but, as fast as this business is losing money, it may have next to no market value.

Vehicle leasing has been the preferred way for millions of consumers to get themselves a brand new car without taking on the obligations of a loan. For years, Ford (F), GM (GM), and Chrysler have offered leasing options through their financial arms. That business has become a big money-loser as SUVs and pick-ups come back to the dealers after the lease term with very little resale value because of high gas prices.  Selling these fuel-inefficient vehicles as used cars has become such a massive money loser that Chrysler has left this business altogether. If the other two members of the Big Three drop out, there will be no such thing as leasing an American car from the company that made it.

Wm Wrigley Jr. Co is about to become history. Founded in 1891, the company is still run by a member of the founding family, William Wrigley, Jr. But, greed got the best of the Wrigley board and the most famous name in gum is being sold to Mars, the most famous name in chocolate bars. Warren Buffett, himself one of America’s most famous icons, will help fund the deal.

Douglas A. McIntyre

There are two important coverage pieces that Buffett fans and financial viewers will want to see today and this weekend.  CNBC has been airing bits of a Becky Quick interview with Warren Buffett on and off today from Omaha ahead of the meeting.  This weekend and on Monday, Fox Business will also be showing some interviews of their own and a live weekend blogging from Liz Claman there in Omaha as well.  But one interview is going to stand out sharply today that is different than others, as Fox Business gets a chance to interview John Freund from Citigroup (NYSE: C) around 3:00 PM EST (media times always subject to change).  This is said to "Buffett’s stock broker."  You can bet money he won’t be giving up any of the Oracle of Omaha’s secrets, but this may be a real first as far as a close Buffett industry source.

This annual meeting We are probably not that far away from seeing the latest round of Berkshire Hathaway’s quarter-end holdings, but here were his last holdings broken down in alphabetical order in 3 groups:

• A-G…. H-P… and S-Z. 

The current climate is actually more of the sort of market that Buffett can thrive in since his buyouts time frame deals with a projected hold time of FOREVER.  He’s plunked down $11 Billion over the last couple months between Marmon Holdings and on his share of the Wm Wrigley Jr Co. (NYSE: WWY).  Earlier this week, Warren Buffett already noted "We are in a recession", noting the difference from the man in the streets versus what the National Bureau of Economic Research gets around to saying.

The real question people may be asking for this weekend is "Will Warren announce a successor?"  While we hope so, we doubt it.  This may stay just as "the four replacements" (three of whom are internal).

Lastly, Mr. Buffett will be heading to Europe mid-month to go tour closely-held companies that can be rolled up or where opportunities are.  He never did do his true "Whale of a deal," but that doesn’t mean it’s ever entirely off the table.

Jon C. Ogg
May 2, 2008

Before this deal, Wrigley was almost 15% off of its 52-week lows, and the buyout premium has this one up almost another 25% higher.  This was approximately 20-times EBITDA and about 32-times 2008 consensus EPS estimates. 

Hershey on the other hand closed Friday at $34.74, only 3.5% ahead of $33.54 low over the last year.  Hershey trades at about 19-times 2008 consensus EPS estimates.  According to Capital IQ, Herhey’s market cap is almost $7.9 Billion before any increase today and it notes that the EBITDA multiple is 9.8 based on the most recent data.  Hershey was also only valued at half of the Wrigley market cap, so in theory financing would be easier to round up.

If all these comparisons are correct on an "on the fly" analysis, you could in theory say that the premiums could be 50% to 100% for Hershey.  The problem is that Hershey has an earnings challenge and its stock was battered harder.  Its raw material costs have escalated in recent years and its dependence on chocolate means its core ingredients are under the whims of some unstable regions in Africa.  This would also not be much of a premium to the all-time highs.  Lastly, it is believed by many that the Hershey family and descendants don’t want to ever give up.

What do these stocks have in common other than stickling their products in your mouth?  Founding families still in charge or in at least a dominant role.  When you have founding families in control or when you have dual classes of stock, about the only mergers that work are friendly mergers where the money for them is just too much to say no to.  They generally want to be included for the future in the new company too for posterity.  The only hostile deals that work in these cases are the hostile deals that turn friendly, still reward the families beyond imagination, and keep them at least somewhat on for posterity.   

After looking over all of this with a quick look, we won’t say that Hershey is all of a sudden worth 50% more than it was Friday.  In fact, it may not be worth significantly more than $40.00. But this Wrigley premium probably just raised the floor on Hershey for the time being.

Shares of Cadbury Schwepps plc (NYSE: CSG) are also indicated higher by 3% in pre-market trading.  Hershey shares are indicated up about 5% pre-market.

You can join our open email distribution list to hear about previews for other mergers, spin-offs, break-ups, IPO’s, and other special situations.

Jon C. Ogg
April 28, 2008

Jon Ogg produces and edits the Special Situation Investing Newsletter; he does not own securities in the companies he covers.

On a per-share basis, Wrigley would be going for almost $80. The company’s stock has not been that high, ever. The one comparable company worth a look for valuation is Tootsie Roll (TR). It has a price-to-sales ratio of 2.6. With the premium offer for Wrigley, it will go for 4x, an unusually high valuation.

The deal is hard to fathom for other reasons. Costs savings are not really evident. The Wall Street Journal points out "A deal would expand Mars’s already considerable global reach. Wrigley generates the majority of its sales outside of the U.S."  But, each company appears to have adequate distribution networks in the US and abroad.

Wrigley has been a solid performer over the last several years with both revenue and operating income moving up. But, with the cost of commodities rising, candy company margins will probably not be what they used to be. That would seem to make Wrigley’s prospect worse and not better than they were last year.

Warren Buffett’s Berkshire Hathaway will finance much of the cost of the buy-out. He is famous for rarely being wrong about where he invests his money. But, not everything he has done has worked out.

He does own a newspaper in Buffalo, NY.

Douglas A. McIntyre

Reuters writes that Chrysler is trying to sell two of its North American plants.

Reuters reports that many Wall St. analysts believe that Microsoft (MSFT) will launch a hostile bid for Yahoo! (YHOO).

Reuters writes that Continental (CAL) will not merge with United (UAUA).

Reuters writest that the Fed will probably cut rates but pause from any further reductions.

Reuters reports that Qantas will raise fare due to higher fuel prices.

The Wall Street Journal writes that Berkshire Hathaway (BRK) and Mars are near at $22 billion to wuy Wrigley (WWY).

The Wall Street Journal reports that China may begin to launch satellite for foreign countries.

The Wall Street Journal reports that AMD (AMD) is making a push for getting more small business customers.

The Wall Street Journal writes that profits at China Life (CHL) fell 61%.

The Wall Street Journal writes that Big Oil should report huge profits this week.

The New York Times writes that Google (GOOG) is releasing new software for better image recognition.

The FT writes that investors are pulling huge finds out of large mutual funds.

Douglas A. McIntyre

• Ambac (ABK), M B I A Inc. (MBI), and Security Capital Assurance (SCA) were downgraded to Neutral from Buy at Banc of America (that was real timely).
• Bed Bath & Beyond (BBBY) raised to Buy from Neutral at UBS.
• Brookfield Asset Management (BAM) raised to Outperform from Neutral at Credit Suisse.
• Double Hull Tankers (DHT) raised to Buy from Hold at Citigroup.
• GFI Group (GFIG) raised to Buy at Goldman Sachs.
• Philps Electronics (PHG) downgraded to Underweight from Overweight at Lehman.
• Priceline.com (PCLN) raised to Buy from Hold at Citigroup.
• Research in Motion (RIMM) raised to Outperform at Oppenheimer.
• Staples (SPLS) raised to Buy from Neutral at UBS.
• Wrigley (WWY) raised to Overweight from Neutral at JPMorgan.

Jon C. Ogg
January 18, 2008

• Air Products (APD) & Praxair (PX) were both downgraded to Neutral at JPMorgan.
• Amecia Movil SA (AMX) started as Overweight at HSBC.
• Gol Intelligent Airlines (GOL) downgraded from Neutral at Sell at UBS.
• MasterCard (MA) raised to Outperform at Keefe Bruyette Woods.
• 3M (MMM) & United Technology (UTX) both started as Neutral at Banc of America.
• Medarex (MEDX) downgraded from Outperform to Peer Perform at Bear Stearns.
• Newmont Mining (NEM) downgraded from neutral to Underweight at HSBC.
• UBS (UBS) raised to Outperform at Bear Stearns.
• Vimpel Communications (VIP) downgraded from Peer Perform to Underperform at Bear Stearns.
• Wrigley (WWY) downgraded to Equal Weight from Overweight at Lehman Brothers.

See full notes on Starbucks downgrade at Goldman Sachs.

Jon C. Ogg
December 11, 2007

Jon Ogg can be reached at jonogg@247wallst.com; he does not own securities in the companies he covers.

This CEO has definitely helped Honeywell.  No one talks about them being takeover bait any longer because the stock has done well and its valuations are not as dirt cheap as in the past.  Other than that, we’ll have to trust Cramer on this.

The fourth member of Cramer’s "Transformational CEO’s List" is William Perez of Wrigley (WWY-NYSE) is led by a transformational CEO.  He had to figure out how to grow, but not so uch ruffling the chairman of the founding family.  Now they have added more products that are turning out to be wins with added aisle space.  The stock is up roughly 27% and he had run teh private SC Johnson beforehand.  Cramer thinks Wrigley is going to beat estimates from here on out.

Wrigley is a bit of an odd-bird and it was surpising that this one was really chosen.  Hardly anyone ever dicsusses the name even though it is a $15.7 Billion market cap company.  Sometimes there is more safety and more quality in companies like this.  This one is also up roughly 64% in the last year.

Previously Cramer named H-P’s (HPQ) Mark Hurd as one of the transformational CEO’s.  Before Hurd, he also backed Fred Hassan of Schering-Plough (SGP) as the first transformational CEO.