Analysts are watching for these stock spinoffs.
The closest thing to a buy one, get one free deal on Wall Street is a stock spinoff. A spinoff occurs when one public company separates one of its subsidiaries into a separate public company. PayPal Holdings (ticker: PYPL) was famously a spinoff from parent company eBay (EBAY). Pharmaceutical giant AbbVie (ABBV) is a spinoff of parent company Abbott Laboratories (ABT). Companies typically opt for spinoffs to unlock value for shareholders by separating noncore businesses that could be valued differently by the market as separate entities. Here are seven spinoffs for investors to watch in the first half of 2021.
TechnipFMC is a diversified oil services company that focuses on the offshore market. The company is expected to finally complete the spinoff of Technip Energies in the first quarter of 2021. The spinoff will separate the company’s core oil services business and its engineering and construction business. Current TechnipFMC investors will receive a distribution of 50.1% of the spinoff company, while the parent company will retain ownership of 49.9%. Unfortunately, Bank of America analyst Vlad Sergievskii says the spinoff is simply “an elegant attempt that masks but doesn’t solve” TechnipFMC’s declining earnings and mounting debt issues.
DuPont de Nemours (DD)
DuPont de Nemours is a chemical company that provides materials used in electronics, transportation, construction and other markets. DuPont is in the process of spinning off its Nutrition & Biosciences business in a somewhat unconventional transaction involving International Flavors & Fragrances (IFF). DuPont shareholders have the option of exchanging some or all of their DuPont shares for shares of the newly formed Nutrition & Biosciences before the spinoff’s merger with International Flavors & Fragrances. CFRA analyst Richard Wolfe says the spinoff should help DuPont realize $280 million in savings, but the stock has limited upside after a strong bounce off 2020 lows.
Vodafone Group (VOD)
Vodafone is Europe’s largest telecommunications company with 116 million mobile customers. The company is in the process of spinning off its telecom infrastructure business, Vantage Towers. Vodafone is expecting the spinoff in early 2021, and the new entity will own more than 68,000 telecom towers throughout nine European countries. Morningstar analyst Michael Hodel says the spinoff will help Vodafone monetize its tower assets and create value for investors. In addition, he says it will provide greater financial flexibility for the parent company. Morningstar has a “buy” rating and $24 fair value estimate for VOD stock.
IAC/InterActiveCorp is the parent company of several online media assets, including ANGI Homeservices, Vimeo and Dotdash. IAC is in the process of spinning off its stake in video software subsidiary Vimeo. Bank of America analyst Ryan Gee says IAC has a long track record of successful spinoffs dating back to Expedia (EXPE) in 2005. IAC has also spun off Ticketmaster in 2008, LendingTree (TREE) in 2008 and Match.com and Tinder parent company Match Group (MTCH) in 2019. Gee says Vimeo is the most unique and valuable asset in the IAC portfolio.
Merck & Co. (MRK)
Global pharmaceutical company Merck is planning to spin off its women’s health, legacy brands and biosimilars businesses into a new public company called Organon in the first half of 2021. The women’s health business dates back to 1923, and Merck has owned it since 2009. Before the spinoff, Organon will pay Merck a special dividend of between $8 billion and $9 billion, and Merck investors will receive a tax-free distribution of 100% of Organon’s common stock. CFRA analyst Sel Hardy rates Merck a “strong buy” and says the spinoff will enable Merck to focus on key growth drivers.
Tenet Healthcare Corp. (THC)
Medical facility operator Tenet Healthcare has been planning a spinoff of its revenue cycle management, or RCM, subsidiary Conifer Health Solutions for a while now, but that spinoff is finally expected to happen later in the first half of 2021. RCM involves identifying, collecting and managing payer revenue based on services provided and is an essential part of any health care business. Conifer reportedly manages more than 17 million patient interactions and $25 billion in net patient revenue per year. Morningstar analyst Julie Utterback says the debt-for-debt exchange involved in the spinoff process will help Tenet achieve its financial leverage targets.
Dell Technologies (DELL)
Dell is an information technology hardware, software and service solutions company that produces servers and desktop and laptop computers. Dell also has an 81% ownership stake in enterprise software company VMware (VMW), but Dell has long been planning to spin off its VMware stake to both Dell and VMware shareholders. Dell is reportedly seeking to gain approval for the spinoff to be tax-free for investors. CFRA analyst Angelo Zino says the 81% stake in VMware is worth nearly $50 billion in itself, which makes it worth roughly 90% of Dell’s $55.4 billion market cap.
Keep an eye on these stock spinoffs:
— TechnipFMC (FTI)
— DuPont de Nemours (DD)
— Vodafone Group (VOD)
— IAC/InterActiveCorp (IAC)
— Merck & Co. (MRK)
— Tenet Healthcare Corp. (THC)
— Dell Technologies (DELL)
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