When Bristol-Myers Squibb did the stock spin-off of its Mead Johnson (MJN) nutritional unit I wasn’t too excited about it, because I figured that it didn’t fit the successful spin-off stock model that tends to create a value situation, but I overlooked one place where it did, and that turned out to be an important one.

Generally, the simple stock spin-off in which shares of the new company are distributed to current shareholders of the parent company is the easiest kind for me to understand.  People get shares whether they want them or not.  For various reasons many of them don’t want or can’t keep the shares they receive, so they sell them soon after the spin-off which drives the price down below where it “ought” be by common measures of value.

The IPO route taken by Bristol-Myers Squibb did not hand shares to people who were very likely not to want to keep them.  It sold them to willing buyers.  So, I asked myself where the value creation force is in that.  No one had shares they wanted to unload right away and if you look at MJN’s chart you will see that they didn’t.  But something else was at work.

BMY kept 83% of the total shares of the company.  What this did was limit the public float.

Public float describes the number of shares that you or I or anyone else can go buy on a stock exchange.  The public float does not include shares owned by officers, directors, or others with a very large stake in the company.  In other words people who can’t or are very unlikely to sell them.

Thus, for large scale investors, no matter how good MJN might look to them,  setting up large positions was very difficult or impossible.  They couldn’t get in without distorting the market .

Going back to the reasons I like spin-off stocks notice the one about how the “big guys” often aren’t interested or can’t go there.   When I wrote that I was thinking of a case in which the spin-off company was simply too small for most big investors.

What I hadn’t considered was how this same thing might be accomplished by holding back stock and creating a small public float.  Nor had it occurred to me that when they completed the spin-off by selling the rest of the shares, this would be the selling that pushed the price down as the chart seems to show the October, November, December time span.

So, there it is:  lesson learned, (I think).  Will I be smart enough to see signs that an IPO spin-off has this potential?  To work both the potential for big price movements due to the small float and not get caught flat footed when the rest of the shares are dumped onto the market?  Frankly, I don’t know.  I hope I’ll be smarter about it, but of course these things never look exactly alike.  I do know that I will not reject an IPO spin-off out of hand.  Beyond that, we’ll see.

Tags: BMY, Bristol-Myers Squibb, Mead, MJN

ABII Abraxis Bioscience

If you are wondering what Abraxis Bioscience has up its sleeve with respect to their previously announced stock spin-off, you apparently are going to have to wait until March 11, 2010, before the market opens.  That’s when they have scheduled their conference call to report 4th quarter 2009 results.

Given the comment to an earlier post here and a cursory look at an ABII chart,  it looks like from an investor’s point of view it is time to do something. Whether that’s a stock spin-off or something else is their business.  I just hope they get a bit less stingy with their plans and reasons as it goes forward so we have something to go on.

Tags: stock spin-off

PPD Inc., a contract research organization (CRO),  has filed SEC documents,   Form 10 Registration Statement,  that moves it a step closer to the previously announced stock spin-off of its compound partnering subsidiary, Furiex.

What is a CRO?    PPD Inc. has provided us with a webpage on CRO’s that has a podcast so that you don’t even have to read.

PPDI

Furiex is a wholly owned subsidiary of PPD and the plan is that it will be distributed to shareholders of PPDI as a stock dividend.  When the spin-off is complete, Furiex will be a completely separate, publicly traded company.

Their present timeline calls for the stock spin-off to occur in mid-2010, though they note in their press release announcing the spin-off that a number of things have to happen in the mean time.

A Triangle Business Journal article notes that PPD Inc. employs about 2,000 people in the Raleigh-Durham area of North Carolina.  Hopefully, given the amount of local interest that 2,000 jobs can stir up, we will be getting more information from this source in addition to what is filed with the SEC.

Tags: Form 10, Furiex, PPDI, spin-off stock, stock spin-off

In a terse stock spin-off announcement on January 28, 2010, Abraxis Bioscience (ABII) said that it would be spinning off Abraxis Health some time this year.  It was one of those statements that say everything and nothing, and leave you wondering what’s really going on.  Sort of like saying that the CFO is departing to “spend more time with his family”.

Here’s what they said:

“By spinning off Abraxis Health as an independent, stand-alone company, we believe we will enhance the intrinsic value of both companies by allowing each company to pursue its differing drug development and commercialization strategies,” said Patrick Soon-Shiong, M.D., Executive Chairman of Abraxis BioScience. “We also believe the spin-off will facilitate each company pursuing the most attractive long-term growth opportunities and business strategies, thereby maximizing shareholder value.”

Maximizing shareholder value is always good and we know the part about the separate units being able to pursue their own strategies.  But, is it a good deal for shareholders of the parent, the spin-off stock, or perhaps both?  Unlike the CFO leaving for more time with his family, we will be finding out.  The mandatory information that the company will be filing with the SEC will see to that. -

Now we just have to wait for those SEC filings and set aside the time to read them.   Then we can decide for ourselves whether there is indeed shareholder value in this or not.

Tags: ABII, Abraxis Bioscience, Abraxis Health

Encana spin-off Cenovus, CVE, closed today with its price at the lowest level that it has been since the stock spin-off, 41 days ago by my count.  Where is the “drop-right-after-the-spin-off-and-then head-higher” pattern that we’re looking for when we need it?

The often quoted studies on spin-off investing used stock price two years after the spin-off for their calculations and if my memory serves me correctly they found that most of it came in the second year.  Which brings up a significant psychological factor in making any trading plan work, which is how one sticks to the plan without getting thrown off by activity between getting in and when the plan calls for you to get out.

Where Cenovus will go from here is anyone’s guess.  Spin-off stocks tend to outperform.  Which is a way of saying that on the whole, spin-off stocks go up, but any particular one may or may not.

One thing is for sure and that is that when you don’t stick to your trading plan, whatever it is, you are at risk of getting caught on the wrong side of  the trade coming and going.

What does your trading plan call for here?  Do you get out on the new low?  If so, is it the end of the trade or will you re-enter?  Under what circumstances?  Or, have you decided that your exit will be two years after the spin-off?  Perhaps, you view the spin-off as having a positive bias and you will trade it long.

Whatever you decided when you got in, now is not the time to decide to throw the plan out the window and wing it.

Tags: Cenovus, CVE, spin-off stock, stock spin-off

You have been provided with a list of stock spin-offs to be completed in 2010 courtesy of The Spinoff Report.  If you want to go further than the list and partake of their expertise, you can go to their website and subscribe to their service.  They do a very complete job and if your involvement in this area is big enough to justify their fee, it certainly is something worth looking into.

For the rest of us, whether we can afford the top tier advisory service or not, stock spin-offs remain an excellent corner of the market in which to be looking for positions that meet our personal criteria.  Of course this presupposes that you have personal criteria that must be met before you enter any position, no matter how likely success may be in any particular group of stocks.

You likely will not generate as complete an analysis as TSR does, but that may be counterbalanced by putting in the time yourself.

Tags: stock spin-off

A spinoff stock such as AOL always comes with a story and stories are dangerous if taken for more than they are worth.    For example, this recent Wall Street Journal article brings us a look at some of the “good” and the “bad” stories about the AOL spinoff.  The WSJ is passing on views from some very smart people.

What’s the danger in a story?  Lots as it turns out, especially when they are good ones well thought out and well written.

Stories are dangerous because they feed your desire to “know” what’s going to happen next.  And, thinking that you know what’s going to happen next in trading is like putting on blinders if not a full blindfold.

Someone once argued that the purpose of all thinking is to be able to stop thinking.  ”Ah, now I’ve got it!  Next.”  The big problem is that it is the very nature of our lives that we don’t know what is going to happen next.  Maybe all charts should  be printed with a big blank space over there on the right side where the unknown is lying in wait.

Given the possibilities for AOL in the WSJ article and those from other sources you may find, is AOL a good bet?  It is a spinoff, and that puts the odds in your favor.  It does seem to make sense to get it apart from Time Warner,  another positive.  And, the observation that the ratio of ads on the internet to the number of hours that eyeballs are on webpages is relatively low scores a big positive.  On the other hand, there are negatives too.

So, yes,  AOL does look like a candidate for a watchlist to me.  It is a reasonable place to direct some of your precious attention.  Is it’s stock price going to go up and outpace the market.  No one knows!  No one!

Watch your charts.  Watch price and volume.  When the stock breaks out by whatever criteria you have set in you trading plan,  buy it.  Just let it come to you and stay away from fortune telling.

Tags: AOL, spin-off stock, stock spin-off, trading plan, TWX

The Entergy Stock Spin-off of its nuclear power plants has been in the hands of the regulators for some time.  Apparently, Entergy is thinking that if they can’t get their nuclear business separated by spinning it off, then maybe they can do the reverse.  And why not?  If the point of a stock spin-off is to end up with more focused, effective entities that each will do better on its own, what does it really matter which part is the parent?

Recently the  Wall Street Journal wrote . . . “Entergy Chairman and Chief Executive J. Wayne Leonard with saying that  the company could spin off its utility businesses into a stand-alone company to accomplish the same goal of separating its regulated utility businesses concentrated in the Southeast from its nuclear plants that sell power at market prices.”    The article is worth reading if you are following Entergy’s efforts from another point of view.

The question for us may end up being ‘which one is the parent?’  We, of course, want the one whose stock price is going to go up the most, the fastest whatever it ends up being called.  I guess that’s the one whose real value has been bound up the most in the present organization.  Is it the utility that is stuck with the nuclear power plants or the nuclear power plants that are stuck with being part of a utility whose main focus is in another part of the country?

We can just keep watching it unfold.  There seems to be plenty of time for that.

Tags: Entergy, ETR, nuclear power, stock spin-off

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