Spinoffs Are Popular. They Can Also Be Dangerous.
Jun 9, 2022
Global deal making may have fallen out of fashion, but breaking companies up never seems to go out of style. Companies including Intel (INTC), XPO Logistics (XPO), Aramark (ARMK), and Fortune Brands Home & Security (FBHS) have announced plans to spin off major divisions in recent weeks, in a bet that it will reverse a decline in share prices and boost shareholder returns. Others, such as Western Digital WDC –4.14% (WDC), have come under pressure from activist investors to hive off a business to exploit its potential value as a separately traded company. Nearly 60 global corporate spinoff deals were completed in 2021, more than the 42 in 2020, according to data from Dealogic, and at least seven more have been announced so far this year.
“Investors should watch particularly how movements of cash and debt in spinoff transactions affect the balance sheets of the two companies post-spin,” Jim Osman, founder of research firm Edge Consulting Group.