The stock spinoff of Orchard Supply Hardware from Sears Holdings Corporation was announced recently in a company press release .

Sears Holdings Corporation describes itself in perhaps a telling way relative to this spinoff as follows:

“About Sears Holdings Corporation

Sears Holdings Corporation is the nation’s fourth largest broadline retailer with over 4,000 full-line and specialty retail stores in the United States and Canada.  Sears Holdings is the leading home appliance retailer as well as a leader in tools, lawn and garden, consumer electronics and automotive repair and maintenance.  Sears Holdings is the 2011 ENERGY STAR® Retail Partner of the Year.  Key proprietary brands include Kenmore, Craftsman and DieHard, and a broad apparel offering, including such well-known labels as Lands’ End, Jaclyn Smith and Joe Boxer, as well as the Apostrophe and Covington brands.  It also has the Country Living collection, which is offered by Sears and Kmart.  We are the nation’s largest provider of home services, with more than 11 million service calls made annually.  Sears Holdings Corporation operates through its subsidiaries, including Sears, Roebuck and Co. and Kmart Corporation.  For more information, visit Sears Holdings’ website at www.searsholdings.com. ”

Notice that they don’t mention the soon-to-be stock spinoff, Orchard Supply Hardware,  specifically in there at all even though Orchard operates 89 hardware stores that apparently do a good job and make money.   Further, when I clicked on the link above and poked around looking for more information on Orchard Supply Hardware,  I gave up before I found it.

Maybe I gave up too soon, but Orchard was not front and center, which leads me to believe that Orchard Supply Hardware is worth a closer look as a buy after the spinoff dust settles.  Management of Orchard Hardware Supply very well might be better off on its own, not an invisible part of Sears Holdings.

Tags: Orchard Supply Hardware, sears holdings corporation, shld, stock spin-off, stock spinoff

ITT Corporation has announced that it intends to use a stock spin-off process to separate the company into three parts:  water technology, defense technology, and the rest of ITT that will be left with those two off on their own.

The is no lack of coverage or awareness of this or most other stock spin-offs now.  Perhaps there was a time when spin-off stocks traveled under most investors’ radars, but that advantage for savvy value seekers has been diluted by websites, blogs, and even highly touted, heavily sold “all-you-to-do-to-beat-the-market” e-books and courses.

The ITT spinoff even has its own website to explain exactly what is going to happen,  http://www.transformationitt.com .  “Three Strong Businesses Positioned to Create Significant Value for Shareholders as Standalone Companies” is apparently their motto.  The pro forma revenues are reported at $3.6 billion from water, $5.8 billion from defense, and $2.1 billion from ITT which they describe as “a diversified global manufacturer of highly engineered industrial products.”  So you and everyone else has more than enough data to get totally bored or confused.

So what’s an individual investor to do?  Other than give up the whole thing, of course.

First off, you can just read the information, draw your own conclusions and make your best estimates of the potential for the parts of the transaction, parent stock and spin-off stock.  That can work quite well actually.  Do you think defense spending will be cut?  Do you think that the world demand for clean water will be a profitable area in the future?  No one has a chart with data on the right hand side that goes beyond today’s date.  Take a deep breath and make your own predictions.  They’re likely to be as good as anyone elses.

As far as I can tell at this point, this spin-off does show signs of being a situation in which the sum of the parts could turn out to be worth more than the whole.

• Though the underlying theme is engineered solutions to complex challenges, each is working in an identifiably different area of application.
• All three entities are in the business of keeping an increasingly efficient flow of limited natural resources flowing to the world’s economies.
• It doesn’t look like the spin-offs are an attempt to dump toxic assets.
• Top executives from the current ITT are going with the new companies.

On the other hand, none of them seems as though it is going to be so different from the current parent company that they will necessarily be automatically dumped by current shareholders creating value that way and they haven’t told us how debt will be apportioned among the three companies.  So, watching, reading, and trying to put it all together is going to be necessary.

Another way to go is to pick some measurable characteristic(s) of the companies’ operations that make sense to you for which you have access to accurate information.

This can take a bit of digging,  but if you find something that others may not be taking into account, it can be well worth the effort.

Ratios can be helpful in this regard because they allow you to compare the data across several companies.  The challenge here is to make an accurate decision about what companies  to compare each component to.   It’s fairly easy to find them for the current configuration in free content on the internet.   For the current ITT  the Morningstar website lists the price/book ratio to be 2.6,  price/sales 1.0, forward Price/Earnings 12.7, and Price/Cash Flow 12.8.  And often, others will even do some calculations for each component of the spin-off for you, especially for the high visibility spin-offs like this one.

Take advantage of those.

As with most stock spin-offs, there is plenty of time to watch the process unfold and decide if, when, and where to enter.  Make the trade come to you.

Tags: ITT, stock spin-off, stock spin-off investing, Value Investing

Here’s another article that is positive on the Sunhealthcare/Sabra spinoff posted at the Motley Fool website, that might be helpful and might not.

It has been said that the purpose of thinking is to be able to stop thinking and I have found that there are few better ways to keep stopped thinking from sneaking back than finding someone who agrees with my decision.

How do you know when careful research is slipping over into self-cheerleading?  I for one have never been certain.  If you have a tendency to never want to stop taking in data, then you you might want to watch out.

This is one of those cases where Gerald Loeb’s admonition to always have reason and a confirming move in price is probably a good idea.

Tags: sabra, sbra, spinoff, sun healthcare, sunhd

The Orange County Business Journal has published an article on the Sun Healthcare spinoff that fills in a bit more information on what’s happening. On the premise that the local newspaper is likely to include things that the national sources don’t have room for, I am passing the link on here.

Tags: sbra, stock spinoff, sun healthcare, sunh

Sun Healthcare, SUNH,  has reported that if all goes as expected at the shareholder meeting on November 4, 2010, they are going to break their company into two parts by means of a stock spin-off.  When it is all done there will be two publicly traded companies: Sun Healthcare which will own the operating assets and Sabra which will own the real estate assets.

The Sun Healthcare company announcement spells out step by step how it will occur.  I found the description rather confusing and did better when I could see  it out graphically in their May 27, 2010 SEC filing.

My best take on what is going to happen is that, first,  current Sun Healthcare shareholders will receive all of the the shares of the wholly owned subsidiary, SHG Inc. that apparently owns the operating assets., and then what’s left of SunHealthcare after that will be merged merged into its wholly owned subsidiary Sabra Healthcare REIT, Inc., which owns the operating assets.

When it is all done if you are a shareholder in the current Sun Healthcare, instead of owning one stock in a company with two subsidiaries, you will own the operating assets portion of the current company which will be called the Sun Healthcare Group (SUNH) and you will also own Sabra REIT (SBRA) which will own the real estate assets portion of the current company as two separate stocks.

Right now, Sun Healthcare does not pay a dividend.   The company has stated that Sabra intends to elect REIT status in January 2011,  so presumably that will change.

If the company is correct that the market is not recognizing their true value because it is essentially an REIT and a healthcare services provider all rolled into one, then this should result in the total market value of the two parts increasing.  Are they correct?  Eventually that question will be answered on your quote screen.

Disclosure:  I do not own shares in SUNH.  I have no financial relationship with the company.

The company describes itself as follows:

About Sun Healthcare Group, Inc.

Sun Healthcare Group, Inc.’s (NASDAQ: SUNH) subsidiaries provide nursing, rehabilitative and related specialty healthcare services principally to the senior population in the United States. Sun’s core business is providing, through its subsidiaries, inpatient services, primarily through 166 skilled nursing centers, 16 combined skilled nursing, assisted and independent living centers, 10 assisted living centers, two independent living centers and eight mental health centers. On a consolidated basis, Sun has annual revenues of $1.9 billion and approximately 30,000 employees in 46 states. At Oct. 1, 2010, SunBridge centers had 23,189 licensed beds located in 25 states, of which 22,407 were available for occupancy. Sun also provides rehabilitation therapy services to affiliated and non-affiliated centers through its SunDance subsidiary, medical staffing services through its CareerStaff Unlimited subsidiary and hospice services through its SolAmor subsidiary.

Tags: sbra, stock spin-off, sunh, sunhealthcare

Spinoff stocks and the stock of the parent company that separates off a portion of its business have both generally done well after the spinoff, but the spin-off stocks as a group have done better.

Is that always true?  No.

Why?  Well, why is almost always easier to tell in retrospect, but the reason for the stock spin-off should give some clues.   For example, look at what LRAD President Tom Brown said about why they are spinning off their HSS division as Parametric Sound in an LRAD company press release.

“When Company founder and the inventor of  HSS, Elwood G. Norris, approached the board of directors earlier this year regarding spinning off HSS through a tax free distribution, we viewed it as the best opportunity to create shareholder value for a business that has historically contributed significant losses to the Company’s operating results and contributed less than 5% to our total business revenues through the fiscal nine months ended June 30, 2010,” remarked Tom Brown, president and CEO of LRAD Corporation.

Sounds like they’re figuring that they’ve got a good thing going with the sound systems, but that’s being held back with the focused listening systems.

Will Parametric Sound find a way to start making money and eventually outperform the parent?  Who knows?  I certainly don’t.  That will be in the public record soon enough.

Maybe the best bet for those who do find themselves in possession of Parametric Sound shares will be that a larger company has a need for their technology and buys the whole company.

For right now though, if this is a situation that interests you, the parent is probably the more likely bet.

Tags: HSS, LRAD, Parametric Sound, spin off, spin-off stock, stock spin-off

LRAD Corporation, symbol: LRAD, has announced that September 10, 2010, is the record date of its tax-free stock spinoff of its HSS business.

Just in case you have not heard of either (I hadn’t),  here’s how the company describes itself on its website :

“LRAD Corporation’s Long Range Acoustic Device® (LRAD®) directional sound systems are being used around the world in diverse applications including, fixed and mobile military deployments, maritime security, critical infrastructure and perimeter security, commercial security, border and port security, law enforcement and emergency responder communications, and wildlife preservation and control. ”

You can read more about it on the company website, but appears that they make very loud, highly focused bullhorns and a product called HSS which is a very sensitive, highly focused microphone.

Does this stock spinoff make sense?   . . . for the company?   . . .  for potential investors in the parent or the spin-off stock?  I can’t tell.   The company is pretty much “under the radar” when it comes to analyst opinions.

It does seem a bit odd for a company whose stock sells for around $1 a share to be wanting to split itself up.  On the other hand, if having the two product lines is really counter to long term growth of either component, then I guess it might.

At least when you’re trading in a stock this cheap, you can just make the entry price your stop and then sit back and watch.

Tags: HSS, LRAD, spin-off stock, stock spin-off

For those of you who have wanted a consistent and comprehensive source of information on stock spin-offs, but have found the professional services too pricey, there may be an option for you.  I say “may” because the new service from the Stock Spinoff Report people is still $99/mo., but if you play in a league where that is cheap, check it out.  It is called TSRlite.

Tags: stock spin-off

Tyco International, (TYC), announced in late April of this year that it would do a stock spin-off of its electrical & metal products business in 2011,  and we haven’t heard much if anything about it since.  Apparently, the number of pieces that have to come into place for a spin-off stock to actually come into existence is mind boggling.  It takes a lot of work, a lot of time, and there really isn’t anything for the company to say until they get it all in order to the satisfaction of the SEC.

This points up one of the difficult parts of stock spin-off investing, at least for those of us with ADD, and that is the grand pace at which these things proceed.  The themes of greed and fear have been beaten into the ground by anyone with anything to say about investing, but impatience and loss of focus really ought to be right in there with the big two.

You have to remember what you are watching and you have not resist the urge to try to “push the river”.  Each kind of trading has its own pace and flowing with that makes the different between success and failure in any particular style. When it comes to spin-off investing it sounds simple, and, I guess it is for those of you with the right temperament.  For the rest of us, watch lists and calendar alarms and taking a deep breath and waiting for the trade to come to us are vital.

So, keep your eye on Tyco’s upcoming spin-off.  We won’t be able to assess its potential until they give us some data on what they are going to do.  If that looks good, then we can wait to get confirmation from price and volume.

Tyco Describes Itself As: ” a diversified, global company that provides vital products and services to customers in more than 60 countries. With more than 100,000 employees worldwide, Tyco is a leading provider of security products and services, fire protection and detection products and services, valves and controls, and other industrial products.”

Tags: impatience, spin-off stock, stock spin-off, TYC, tyco International

Even before spin-off stock of Babcock & Wilcox starts trading on the New Stock Exchange under its new ticker symbol, BWC,  the company is showing signs of what’s ahead with its recently announced alliance with Bechtel for small modular nuclear power plants,  (SMR=small modular reactor).

Babcock & Wilcox has been successfully putting nuclear reactors in demanding situations for years.  Their small modular reactors have kept the nuclear submarine and surface ships of the US Navy going  efficiently, safely, and largely unnoticed for decades.  Linking up with Bechtel to take this experience and skill out of the warships and out into the world certainly seems like a good idea on the surface of it.

For more details from someone who focuses on nuclear power generation issues, you might find this linked blog post on the Babcock & Wilcox/Bechtel Power venture.

As far as stock spin-off investing goes, we can only hope that most people don’t even know who Babcock & Wilcox are and what they do and only relate Bechtel to involvement in Boston’s “Big Dig”.  If that’s the case, with any luck they will bail out of BWC early, giving us a chance to get in at a good price.

We need every kilowatt we can scrape up in the future and when it comes to nuclear power generation, these two know what they are doing.

Tags: Babcock & Wilcox, Bechtel Power, nuclear power, spin-off stock, stock spin-off