Matt Krantz | USA TODAY | September 28, 2015
Wall Street might have celebrated Alcoa's plan to split into two different pieces, but investors should know that similar spin-offs like the one the aluminum giant announced have not exactly turned out to be good news for shareholders.
Monday, Alcoa (AA) was one of the few stocks that rallied as the broad market took a pretty brutal beating. The stock rose 52 cents, or 5.7%, to $9.59 on a day when the Dow Jones industrials fell 1.9%, the Standard & Poor's 500 skidded 2.6% and the Nasdaq composite took a 3.4% thumping.
The initial positive reaction to Alcoa's announcement Monday appeared to ignore the reality of how similar moves by other companies have turned out recently for their shareholders. The Guggenheim Spin-Off exchange-traded fund, which tracks the performance of major spin-offs, is down 12% this year. That's roughly twice as worse as the decline of the broad S&P 500 for the same period.
Spin-offs are all the rage on Wall Street — at least in terms of how some big investors are trying to force change in companies. Activist investors have been pressuring companies to break themselves into smaller and more efficiently focused companies. By spinning off a unit or division, the companies can cut away the red tape that prevented both entities from being the best-in-breed, or so the theory goes.
Investors have been successful in persuading companies to do spin-offs. So far this year, 34 companies have announced plans to spin-off units, and 25 have completed these deals, says Joe Cornell of Spin-Off Advisors. By year's end, Cornell predicts 51 companies will have announced spin-offs, which is down from 60 last year but up from 37 in 2013.
Completed spin-offs per year (2015 estimate) (Photo: Spin-Off Advisors)
There's no question that when spin-offs work well, they are often huge boons for investors. Shares of wireless spectrum license owner Straight Path are up 122% this year. The company was spun-out of IDT in 2013.
Longer term spin-offs have done very well, too. The Bloomberg Spin-Off Index is up 532% from Dec. 31, 2002, Cornell says, easily topping the 116% gain by the S&P 500.
But it's far from a guarantee, especially as performance has soured this year. Consider the disappointing 92.3% decline by Altisource Asset Management this year. The company was spun off from Altisource Portfolio Solutions in 2012.
Hopefully Alcoa will be the deal to get spin-offs back on their long-term winning formula.
Worst 5 stocks in Guggenheim Spin-Off ETF this year:
Company, Symbol, YTD % Ch.
Altisource Asset Management, AAMC, -92.3%
TimkenSteel, TMST, -71.7%
Rayonier Advanced Materials, RYAM, -71.3%
Tribune Publishing, TPUB, -64.8%
Civeo, CVEO, -61.2%
Best 5 stocks in Guggenheim Spin-Off ETF this year:
Company, Symbol, YTD % Ch.
Straight Path, STRP, 122.2%
Prothena, PRTA, 114.8%
WhiteWave Foods, WWAV, 21%
ONE Gas, OSG, 7.5%
Blackhawk Network, HAWK, 6.1%
Source: S&P Capital IQ, USA TODAY
To view the article on usatoday.com click here: Spin-offs nauseate investors for now
---------------------------------------------------------------------------------------------------------------------------------------------------------
Spin-Off Research is published by Spin-Off Advisors, LLC. Spin-Off Research is a subscription-based service for Professional and Institutional Investors. Blog entries are delayed. Spin-Off Research subscriber-base receive the spinoff report at time of press via Email Bulletins. To learn more about becoming a subscriber, please contact us. Spin-Off Advisors, LLC provides coverage on all US and major Global spinoffs, carve-outs and split-offs; Spin-Off Research published since March 1997.
