SPIN-OFFS

"Researchers who did a meta-analysis of more than 25 papers in the spin-offs literature summed up their findings this way: ‘The main conclusion is consistent: spin-offs are associated with strongly significant abnormal returns. They suggest the factors that explain these wealth effects include sharpened focus, better information, and in some cases tax treatment." Michael Maouboussin

"There are plenty of reasons why a company might choose to unload or otherwise separate itself from the fortunes of the business to be spun-off. There is really only one reason to pay attention when they do; you can make a pile of money investing in spin-offs." Joel Greenblatt

“Spin-offs often present attractive opportunities for value investors.” Seth Klarman

"Spin-outs continue to provide opportunity." Chris Davis

"Spin-offs of divisions or parts of companies into separate, freestanding entities often result in astoundingly lucrative investments." Peter Lynch

"One study completed at Penn State, covering a twenty-five year period ending in 1988, found that stocks of spin-off companies outperformed their industry peers and the S&P500 by about 10% per year in their first three years of independence. The parent companies also managed to do pretty well – outperforming the companies in their industry by more than 6% annually during the same three-year period…. These extra spin-off profits are practically built into the system. The spin-off process is a fundamentally inefficient method of distributing stock to the wrong people.” Joel Greenblatt

“Some spin-offs have similar dynamics, though they need to be assessed case by case. A spin-off is when a large company divests a subsidiary by distributing the subsidiary’s shares to the parent company’s shareholders. Over the years we have found that carefully selected spin-offs are terrific opportunities.” David Einhorn

“Work-outs – these are the securities with a timetable. They arise from corporate activity – sell-outs, mergers, reorganizations, spin-offs etc. .. the category produces more steady absolute profits from year to year than ‘generals’ do. In years of market decline it should usually pile up a big edge for us; during bull markets it will probably be a drag on performance. On a long term basis, I expect the workouts to achieve the same sort of margin over the Dow attained by generals.” Warren Buffett 1966 [on workouts, one of the three categories of investments in the Buffett investment partnership]

"We may pursue other value investing strategies involving securities that require more frequent purchases or sales such as those related to risk arbitrage, spin-offs, and companies in bankruptcy." Lou Simpson

“[On spin-offs]: We don’t see this anomaly going away. First, the reason a company spins off a division is that the shareholders want that to happen. So they’re going to sell the shares they receive in the spin-off regardless, which is clearly not a positive for the share price. It is also true that businesses prior to being spun off bear a disproportionate cost burden from the parent, and are subject to any number of pressures that inhibit long-term value creation in those businesses. A spin-off can help shed those burdens over time.” Murray Stahl

“Charlie [Munger] mentioned if an investor did just just three things the end results would be vastly better than the rest. 1) Carefully look at what the other great investors have done, 2) Look at the cannibals, ie businesses buying back huge amounts of their stocks, and 3) carefully study spin-offs. Charlie said that an investment operation that focussed on these three attributes would do exceedingly well.” Mohnish Pabrai

“We believe you can find opportunities when companies are going through change and transition. When a company goes through a major acquisition, spin-off, privatization, new product introduction, new regulation, post-bankruptcy, new management, or a recapitalization of the balance sheet, future results could be much better than past results.” Jay Petschek

"Spinoffs are an interesting place to look because there's a natural constituency of sellers and there's not a natural constituency of buyers." Seth Klarman

“The most common separations are spin-offs, demutualizations, and carveouts. Often a declaration of independence is necessary to give freedom to a business that is not operating at its full potential while part of a larger organization. The most successful separations are prompted by the fact that these minority ownerships become too important to ignore. Once they are given their freedom, capital and human creativity is unleashed to productive use. The power of incentives is a major reason why this category continues to provide the best compounding opportunities of all three of our transformation categories.” Christopher Begg

"Events such as spin-offs, emergence of bankruptcy, and recapitalisations - where the movement of debt, equity or assets around on the balance sheet can lead to analytical complexity or some form of irrational selling." James Crichton

"Spin-offs were another thing that attracted our interest. We figured, if someone is spinning off pieces like that, it is a clear indicator that they are concerned about shareholder value." Robert Robotti

"If you hear about a spin-off, or if you're sent a few fractions of shares in some newly created company, begin an immediate investigation into buying more. A month or two after the spin-off is completed, you can check to see if there is heavy insider buying among the new officers and directors. This will confirm that they, too, believe in the company's prospects." Peter Lynch

"You are looking for situations where the status quo is not going to stay in place and you can profit from the extra-ordinary change that is embedded in a particular security. Things like spin-offs would be a major special situation play, as would proxy fights and other efforts to maximise shareholder value." James Dinan

"Our opportunistic investments target more serially inefficient areas such as spin-offs, rights offerings, tracking stocks, low-float securities and restructurings." Mario Cibelli

"We also find that informational inefficiencies are often present in spin-off situations, busted IPO's or post re-org opportunities." Jake Rosser

"Both spin-offs and merger securities are distributed to investors who were originally investing in something entirely different. Both spin-offs and merger securities are generally unwanted by those investors who receive them. Both spin-offs and merger securities are usually sold without regard to the investment merits. As a result, both spin-offs and merger securities can make you a lot of money." Joel Greenblatt

"There is plenty of supporting evidence to suggest that spin-offs often go on to outperform the market. Pure play companies tend to do one thing well, whereas their efforts are often lost or undervalued by investors within a large organization. As a contrarian investor, Marathon is more often than not drawn to examine the slower-growing spin-off, the orphan business which investors may ignore or sell in a quest for more growth and excitement. A new business with low external expectations, less competition, less Wall Street coverage, greater focus and appropriately-incentivised management can make for a highly attractive long-term investment." Marathon Asset Management

“In spinoffs, management typically follows the money trail. All the incentives are there for management to drive value creation at the new, independent company.” Chris Pavese

"Spin-off companies are often misunderstood and get little attention from Wall Street. Investors often are sent shares in the newly created company as a bonus or a dividend for owning the parent company, and institutions, especially, tend to dismiss these shares as pocket change or found money. These are favourable omens for spin-off stocks." Peter Lynch

"Certain characteristics point to an exceptional spin-off opportunity: a) Institutions don't want the spin-off (and not because of the investment merits), b) Insiders want the spin-off, and c) A previously hidden investment opportunity is uncovered by the spin-off transaction (e.g., a cheap stock, a great business, a leveraged risk/reward situation).” Joel Greenblatt

“Sometimes newly listed, spun-out, or restructured companies, can be left in a void of readily available information or a region of institutional breakdown which causes the market to become inefficient.” Ryan Krafft

"Separations are de-mutualizations or spin-offs, where there's a real inflection point in both how the owners are being incented and how capital is being allocated. Usually, there's a real mispricing that exists with separations where there are some forced sellers because the company is too small to be owned by a large institutional owner." Christopher Begg