1) Gannett (GCI) recently transformed itself via spinoff (the parent company changed its name to TEGNA(TGNA)) into a print focused business. New CEO Robert Dickey is tasked with building a business in a market that is facing severe secular headwinds. So what is the plan? M&A. During a recent call, Mr. Dickey said the company is aggressively looking to grow itself via acquisition and this seems to be a trend for newly spun off companies. I guess CEOs start to get an itchy finger once independence is declared. In this case, organic growth of the core business seems unlikely though, so M&A makes some sense. Overall, it will be interesting to see the various business strategy approaches taken by the sizable crop of new, print focused businesses. More interesting will be the results, but it will likely be years before any determination can be made on that front.
2) Barron’s recently featured an interesting piece examining spinoff performance and signs of potential failure. Although the spin off index continues to outperform, there are plenty of big losers in there. The piece offers some advice on potentially spotting some of these ‘duds’:
A budding failure often involves loads of debt, a sky-high stock market valuation, or a questionable motive, such as making the parent company look better at the expense of its offspring. Too, a management compensation structure tied to short-term gains in earnings per share can influence the spinoff of troubled businesses
One recent troubling spin highlighted is DuPoint’s(DD) Chemours (CC) transaction. The whole piece is worth reading, but it’s a point we often repeat. Not all spins are winners and it’s important to analyze them independently and judge them on the merits.
Disclosure: Author holds no position in any stock mentioned.