It seems as though throughout the history of Wall Street, there has been a continuous cycle where companies merge to form ‘synergies,’ and then years later spin off assets to ‘unlock’ value. In the late 1990s, the merger of Salomon Smith Barney and Citigroup was lauded as a monumental merger whose synergies would lead to huge cost savings and cross selling that would benefit shareholders of the combined company. We all know what happened in the ensuing years following that merger. Citigroup, as the combined company is now a shell of its former self in terms of divisions and market cap.
These days the market seems to be in the unlocking phase where several companies are spinning off units in an effort to boost share prices. In the last quarter of 2011 alone, there were eight spinoffs of $100 million or more.
So what's the best way to play corporate spin offs? Should investors buy the child company, the parent, or avoid both? To help answer this question we performed an analysis of all completed spin offs going back to 2001, and calculated the performance of the parent and child stocks in the ensuing weeks and months. Clients wishing to view the analysis can click on the link below. If you are not yet a Bespoke Premium client sign up today! You'll be glad you did.