M&A gets a lot of attention, but many have questioned whether or not it delivers the expected returns to shareholders. Often this is a result of paying too much. While the data on spinoffs is pretty favorable (we might be a bit biased here), the transaction can have some consequences. For example, if the parent company doesn’t retain a stake or strong business relationship with the spin, it gives up on the spinoff company’s diversification benefits and growth potential. Upon announcement, all of the analysts might be touting the plan and shares might be popping, but what about the longer term story or the proverbial ‘big picture’? In the long term there might be some remorse and some company’s wistfully wondering how a gem got away. This recent Forbes article highlights five of these cases and posits that the parent company might have been a bit too “shortsighted” in spinning off a division. The consequences ranges from lost growth to non-existence. Harsh. Here is the list (see the article for the descriptions and reasoning for inclusion):
The article is a fun read as corporate folly always makes for good reading (and case studies…), but I think the article benefits a bit too much from 20/20 hindsight though. After all, isn’t it possible that the success of several of these spins might have had something to do with being freed from the parent? Focused management is one of the most common reasons cited for a spinoff. Would Chipotle have been able to do what it has done as a tiny piece of McDonalds? Who knows?
How do you feel about the list? Any other spins you think should be added?
Disclosure: Author holds no position in any stock mentioned
- Ralcorp Sets Dates, Ratio For Post Spin (stockspinoffs.com)
- Not Enough Love For Spins? Who Cares? (stockspinoffs.com)
- Barnes & Noble To Explore Spinning Off Nook Business (stockspinoffs.com)