Not all spinoffs unlock value. For one thing, there has to be something of value there to begin with. Spinoffs can sometimes be a tool in the arsenal of those operating in the underbelly of the stock market, promoting stocks with no real business except selling stock.
Take U.S. Rare Earth Minerals(USMN). An impressive name, to be sure, for a company that sells clay, and not much of it at that. The company sold a grand total of $13,199 worth of product in the quarter ending September 30, 2011. The company spent $236,200 on SG&A during the quarter.
The company has been far more successful peddling its stock than its mud-based products. Over the past year, the number of shares outstanding have more than doubled as the company has sold over $400,000 in new stock. The company has come a long way from its roots as an empty shell called America’s Driving Ranges. Founders Paul Hait(a former Olympic swimmer) and Dennis Cullison have received millions of shares as compensation for their roles as CEO and as “Principle[sic] Financial Officer”(we hope his math skills are better than his spelling), which filings show they have disposed of often and in volume, each disposing of millions of shares last year. In addition Hait and Cullison are the majority beneficial owners of M Strata which owns the claims the company mines, and receives a royalty on all products sold.
Apparently, managing such a sprawling enterprise, whose revenues are now approaching that of a failing roadside ice cream stand, is an unwieldy business, so the company has now announced it will be spinning off BioMultimin. The company claims the that “This decision was made due to the recent increased demand and sales of Micro Excelerite(R) human consumption and cosmetic products”. With a grand total of $3,603 in revenue in the most recently reported quarter, the new company will have less revenue than a poorly located soda vending machine.
If you have a fetish for owning worthless paper, this may be an opportunity for you to get two for the price of one. Otherwise, we suggest you set your money on fire rather than buy this stock- eating the ashes is likely as efficacious as BioMultimin’s products.
Disclosure: The author holds no position in any stock mentioned.