Vishay Intertechnology, VSH, has announced that it is planning a stock spin-off to separate its measurement and foil resistor businesses into a stand alone company that they intend to call Vishay Precision Group.  They say they are going to accomplish this by a tax-free stock dividend to existing shareholders.  Their reasons are the standard spin-off reasons of allowing management of both the spin-off and the parent to focus better on their own businesses.

The Vishay Precision Group describes its focus as being the design, manufacturing, installation, and maintenance of precision measuring devices.  With the Precision Group on its own, Vishay Intertechnology will be left as what they describe as “a pure-play discrete electronic components business comprised of semiconductors and passive components.”

I don’t understand either of these businesses.  From my limited experience with spin-offs, this is not always a bad thing . . . up to a point.  The “story” of a company can be very seductive making it almost impossible sometimes to believe that it is not prospering or that its stock price is not going up.

Of course, some stories are so bad that spin-off or not they appear to simply be toxic situations.  A quick perusal of analyst opinions on VSH suggest that this is not the case here.

As ever, we will read the SEC filings and watch the price and volume of the parent and the spin-off stock to decide if and when to enter this trade.

Tags: spin-off stock, stock spin-off, Vishay, Vishay Intertechnology, VSH

News that insider information on the AMD stock spin-off of its foundries unit sent me directly to the charts to see what had occurred.  It seemed odd that “smart money” was buying into a spin-off, so I wanted to try to figure out what they were thinking and what was going on. 

With a spin-off date of October 6, 2008, what I first found was a stock in a downtrend that kept downtrending after the spin-off.  This is what smart money does with insider trading?  Well, actually, no they didn’t.

First, they were investing in the parent company, AMD.  They bought well before the rest of us knew whether the spin-off would get funded or not and actually saw about a 25% increase in share price at one point.  Then the market and the stock rolled over and started down.  By the time the actual spinoff occurred it was no secret which way things were heading.

The prosecutors were credited with saying that though they didn’t make money on the trade because the whole market headed south, they were definitely trading on illegally obtained information.   I could not tell whether they were saying that the alleged insider information traders would have made money had the market played along or that it didn’t matter whether they made money or not.

The question about all this that I have is whether it is giving us any new information about what our trading plan for stock spin-offs should be or not.  At this point my conclusion is that I will stick with seeking out spin-offs that are likely to lead to an initial drop in the price of the spun-off stock that creates a value situation and then entering when it turns up.  This one never really fit that bill, no matter what an interesting story it has provided. 

(Are those people crazy?  Seems like they were making more than enough money honestly than to feel they had to risk jail for some more.)

Tags: AMD, spin-off stock, stock spin-off, value

When iGate did its stock spinoff of Mastech (MHH) it certainly had all the markings of a successful spinoff.  The new entity brought good earnings with it.  The parent’s shareholders hadn’t necessarily bought iGate for the staffing division.  And, it was small enough and unknown enough to be under the radar of most investors and analysts. 

It did have one worrisome characteristic however.  It is in a business that does better when the economy is strong and adding jobs.  When there is lots of unemployment,  staffing companies are expected to not do as well … and that is exactly the economy that Mastech was born into.  Oh yes,  and there was another problem that is spoken to in the blog post referenced below.

The “Logical Stock Market Investing Blog” has shared some excellent information on the Mastech stock spinoff.   It is well worth looking at as it fills in a back story that would not be easy for most of us to find ourselves.

On the other hand, good story or not, it was a stock spin-off and perhaps by taking that as reason enough we might have done very well had we waited some reasonable period of time and then entered on a breakout on a weekly chart.

What’s a “reasonable” waiting period?  It’s best to pick your own.  Just look at a number of charts of spin-offs and see what you think.  Whatever you pick, stick with it long enough to tell how you like it without trying to outguess your system.

Disclosure:  I was aware of the MHH spin-off and did not follow my own advice given above, resulting in leaving some money on the table.  Hopefully the lesson will be worth more over time than what I didn’t make by my  “yes, but . . . .” response.

Tags: Mastech, MHH, spin-off stock, stock spin-off