Spinoff Odds & Ends: Speculating On Spins At GM, VW and Intel

Grab your coffee and get over hump day with a helping of idle spinoff speculation in this edition of Odds and Ends. Who knows? Maybe these spins could be coming to your portfolios one day soon!

  1. Morgan Stanley’s Adam Jonas thinks GM (GM) should spin off its Cadillac business. He thinks it could be worth $15b as a standalone company or ~28% of GM’s current overall market cap. In short, the firm sees ‘Cadillac as a distinct and highly valuable business that can increasingly justify and independent existence potentially outside of the GM parent/group structure.’ The idea is basically underpinned by the success of Fiat’s (FCAU) Ferrari (RACE) spinoff/IPO. That transaction (and subsequent plans for Magneti Marelli) has led to an absolute lovefest between Wall Street and Fiat’s head honcho Sergio Marchionne and now analysts are recommending every other auto OEM copy his playbook. Very advanced market leadership strategies in play here folks. It’s easy to forget that just a few years ago Fiat was basically untouchable and it’s also worth pointing out that Fiat is pursuing a unique strategy to the ‘connected car’ world…but that’s an entirely different topic.
  2. Sticking with the automotive world, Forbes quotes analysts at Jefferies pushing a slew of spinoffs in the automotive space, mostly focused on Germany’s VW (VLKAY). At first glance, the driver of this idea appears to be Aston-Martin’s potential IPO and leads to the suggestions of VW freeing Porsche or its other luxury brands. Once again though, all of the ideas are underpinned by the success of Ferrari’s IPO. Monkey see, monkey do. Interestingly, Forbes does note that Citi’s researchers are less excited about the idea because they think that Germany’s rules make corporate restructuring more difficult and less attractive. Interesting comment.
  3. Here is one from The Motley Fool suggesting that Intel (INTC) spin off (or close down) its factories/manufacturing business. The old recent performance is bad so chop it off argument. The author points to recent delays and lower profitability on the 14 nano and 10 nano chips and suggests that the next gen should be the breaking point: ‘If the development of Intel’s 7-nanometer manufacturing technology doesn’t go much more smoothly than the development of 10-nanometer, then the company should view this as a sign that things are so badly broken within the company’s manufacturing organization that it’s best to just abandon the effort altogether. Making such a decision wouldn’t be easy, especially given how intertwined Intel’s product development groups and its manufacturing group are, but management and the board of directors need to make pragmatic decisions that maximize Intel stockholder value.’Intertwined with other products is a big issues, but there are probably a few ones (ex. IP) surrounding this proposal as well. As Coatue’s Philippe Laffont recently noted, Intel’s stock hasn’t exactly been a high-flier over the past fifteen years. He believes AI will have a very positive effect on its business so maybe there could be some future path including a restructuring. This one doesn’t feel like it’s happening any time soon.

Disclosure: Author is long shares of GM.