This Day On The Street
Continue to site
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

5 Short Sighted Stock Spinoffs

NEW YORK ( TheStreet) - Divestitures became a major 2011 strategy as some of America's biggest blue chip stocks like Kraft Foods (KFT), ConocoPhillps (COP), Abbott Laboratories (ABT), Northrop Grumman (NOC), Tyco (TYC) and Marathon Oil (MRO) spun assets to unlock value in their shares.

Shareholders big and small may cheer the flurry of recent spin offs, but in some cases divestitures can be a sugar high that comes at the expense of long term earnings.

Shareholder spins are a quick way to get the full value of businesses that may be weighing on operations, while opening up new avenues for growth. Existing shareholders benefit from owning stakes in divested businesses that oftentimes become far more valuable with brighter prospects as an independent concern. Meanwhile, management accountability to shareholders is easier to track and investors have a much easier time valuing simpler businesses.

The mother of all spinoffs was the Sherman Act breakup of John Rockefeller's Standard Oil in 1911, which made shareholders' stock multiply many times over when the broken up "baby standards" - among them ExxonMobil (XOM) and Chevron (CVX) - turned into some of the most valuable U.S. companies.

One hundred years later, vestiges of the Standard Oil empire and others in the energy sector slimmed down after a generation of consolidation in 2011. Along with ConocoPhillips and Marathon Oil, Sunoco (SUN), Forest Oil (FST), Sunoco (SUN), Williams Companies (WMB) and Chesapeake Energy (CHK) all announced 2011 spins.

Meanwhile, what was once the $100 billion-plus market cap Tyco International (TYC) empire underwent an epic dismantling in two separate spin deals . Thursday, Murphy Oil (MUR) CEO David Wood said he's considering a spin of the company's downstream businesses, a positive sign for 2012 industry divestitures.

Across all sectors, corporate divestitures were a bright spot for deal makers, rising 165% from 2011 and representing 5% of all deals activity, according to Dealogic. In the U.S., divestitures also didn't slow in the second half of the year, as companies spun assets to bolster shares, streamline their strategy and raise capital.

The moves may have launched many stocks higher, but it's to be seen whether they will they will generate long-term outperformance. For instance, the Claymore Beacon Spin-Off (CSD) exchange traded fund recently of spun off entities showed mixed results, underperforming Dow Jones Industrial Average and gaining on Standard & Poor's 500 Index. Ascent Capital (ASCMA), Altisource Portfolio Solutions (ASPS), Phillip Morris (PM), Brookfield Infrastructure (BIP), Lorillard (LO) and HSN (HSNI) were the largest holdings in the portfolio as of Jan. 25, according to its Web site.

Meanwhile at the parent company, spin moves represent a snapshot in time. Those who own shares prior to a spin gain a stake in any new company, while new investors only get a claim on the earnings prospects of what remains at the parent. For some, it means that spinoffs actually can rid companies of a growth asset, or one that provides balance sheet or cyclical stability.

Here's a look at five asset spins that raised capital while jettisoning a needed asset. With the spin dance expected to continue in 2012, a look at past deals shows that some companies may view spinoff decisions with regret.

For more on 2012 deal predictions, see Morningstar's 10 top M&A stock investments and 5 big deals that may flop in 2012.
1 of 6

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Real Money

More than 30 investing pros with skin in the game give you actionable insight and investment ideas.

Product Features:
  • Access to Jim Cramer's daily blog
  • Intraday commentary and news
  • Real-time trading forums
Only $49.95
14-Days Free
14-Days Free
MHS $70.30 0.00%
BKS $8.27 0.98%
CMG $484.10 4.90%
DFS $44.29 2.40%
GME $27.20 2.00%


Chart of I:DJI
DOW 15,884.29 +224.11 1.43%
S&P 500 1,855.79 +26.71 1.46%
NASDAQ 4,317.4520 +50.6150 1.19%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs