Chapter 20
Spin-Offs
When a company (called the parent) sells all or a part of a subsidiary or division to the public, creating a new, independent company, the result is a spin-off. When a company is spun off, shareholders have stock in two different companies. Typically spin-offs come from large corporations, such as Viacom, AT&T, or General Electric, because they have many divisions.
Spin-offs can be very lucrative. An academic study published in 2004 from professors John J. McConnell and Alexei V. Ovtchinnikov analyzed 36 years of data. The conclusion was that on average the returns for spin-offs were 20 percent higher than the Standard & Poor’s (S&P) returns for the three years after the transactions were complete. The authors pointed out ...
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