News & Press

Bloomberg – Spinoffs Heat Up as Companies Seek IPO Alternatives

Bloomberg – Spinoffs Heat Up as Companies Seek IPO Alternatives

Slow going in the IPO market is fostering an unusually packed calendar of tax-free spinoffs as companies seek to boost value by floating parts of their business. Fortune Brands Home & Security Inc. climbed 1.5% on Tuesday after its board of directors approved the spinoff of its cabinets business. It’s just the latest in a busy stretch for separations that give stockholders shares in a new publicly traded entity without triggering a tax event.

Parent companies often choose segments for spinoffs because they feel they’re being underappreciated by the market. The transactions are a useful tool to unlock value as market conditions hinder alternatives like initial public offerings. Spinoffs currently on the calendar are near an all-time high with close to 40 transactions in progress, according to Jonathan Morgan, lead deals analyst at The Edge Consulting Group.

“Companies are looking to create value in some form or fashion in this market,” he said at a special situations conference last week. “They’re not doing it through the traditional way of an IPO. Companies in this market aren’t going to be willing to sell any of their segments at this time. ‘SPAC’ is such a dirty word that it’s not happening anymore. The fourth option, whether they like it or not, is to announce a spinoff.”

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Bloomberg – Exor Jumps After Ideas Swap at Special Situations Conference

Bloomberg – Exor Jumps After Ideas Swap at Special Situations Conference

Presentations were made yesterday (November 17, 2022) at The Edge’s 6th annual charitable conference by keynote speakers Joel Greenblatt (Gotham Capital), Rupal Bhansali (Ariel Investments), David Marcus (Evermore Global), Gary Klein (ShadowBox), George Muzea (Muzea Advisors), Paul Johnson (Columbia University) and Jonathan P. Morgan (The Edge), all benefiting The Alzheimer’s Association. Together with the donations of attendees of the online conference, The Edge raised over $15,000 for the charity.

Bloomberg provided coverage of the event, and The Edge can provide the recording of the conference and the presentation materials on request at research@edgecgroup.com.

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The Wall Street Journal – After Tech Wreck, Barry Diller Could Deliver Buffett-Beating Returns

The Wall Street Journal – After Tech Wreck, Barry Diller Could Deliver Buffett-Beating Returns

Story by Laura Forman (WSJ): Tech-weary investors might just find salvation in an octogenarian billionaire. No, not value investor Warren Buffett, who has in any case aged out of that cohort. Barry Diller has produced similarly impressive returns with a starkly different strategy—until recently, that is. “We have no competition with this business model,” Mr. Diller says. “Maybe because it’s crazy and maybe because it’s savvy.”

“History shows spinning off companies can be beneficial. In a 22-year study beginning January 2000, special situations research boutique The Edge Consulting Group showed spinoffs as an asset class generated three to four times the S&P 500’s returns on average over the first 12 months, concluding “the sum of the parts is greater than the whole.”

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Bloomberg – Intel Analysts See Mobileye IPO Rush as a Bad Omen

Bloomberg – Intel Analysts See Mobileye IPO Rush as a Bad Omen

The decision by Intel Corp. to push ahead with the initial public offering of its self-driving technology unit at a much lower valuation than originally envisaged may presage more trouble ahead for the market, analysts said. Intel was the worst performer in the Philadelphia Stock Exchange Semiconductor Index and the second biggest weight on the S&P 500 Index Tuesday, falling 2.1% after the company set terms for the highly anticipated IPO of Mobileye Global Inc.

“Investors should approach with caution and extra due diligence this and any new issues being sold to them in this environment,” said Jim Osman, founder of research firm The Edge Consulting Group. “There is a desperation trade about it.”

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The Greater Fool Theory Just Played Out In The Stock Market. Here’s How To Capitalize On The Opportunity.

The Greater Fool Theory Just Played Out In The Stock Market. Here’s How To Capitalize On The Opportunity.

Legendary military tactician Sun Tzu changed the way that war and warfare are conducted today. Sun Tzu was a man about whom nothing is known with certainty, but he is best known for his work The Art of War, which serves as a manual for winning wars and conflicts. “Therefore, those who win every battle are not really skilled—those who render others’ armies useless without fighting are the best of all,” Sun Tzu wrote in The Art of War. This “fighting without fighting” is much more of a mental contest than an actual physical fight.

The stock market is always difficult to navigate. Investing is a lot like getting ready for battle. Both entail evaluating one’s positions, strategizing, conducting in-depth research, managing risks, creating scenarios, and more. Sometimes it will lead you to believe it’s easy. According to the Greater Fool Theory, one can profit from a market bubble by purchasing overpriced assets and later selling them for a profit because there will always be buyers prepared to pay a greater price. Speculators subscribing to the Greater Fool Theory could be left holding the bag after a correction. The number of new investors coming to the market in the last two years who claimed it was easy and are now back at their day jobs received this hard lesson.

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Real Talk: The Charles Mizrahi Show — This Special Situation Is Hiding in Plain Sight (Podcast Interview with Jim Osman)

Real Talk: The Charles Mizrahi Show — This Special Situation Is Hiding in Plain Sight (Podcast Interview with Jim Osman)

Charles Mizrahi: “When I want to know more about special situations, I turn to this guy. He’s been at it for more than three decades… Jim Osman is the founder of The Edge research group. Global asset managers and hedge funds pay him a fortune to gain his insight. The reason is simple: He’s that good. And one special situation that he’s focusing on now is hiding in plain sight. It involves three companies that were founded more than 100 years ago. And very shortly, they’ll be creating huge shareholder value.”

Topics Discussed:

An Introduction to Jim Osman (00:00:00)

What’s a Spinoff and Why Are They So Lucrative? (00:04:43)

The McDonald’s Spinoff of Chipotle (00:14:45)

When the Market Comes Down, It’s De-Risking (00:24:33)

Avoiding the Inclination to Sell Your Spinoff (00:40:56)

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Stocks Are On Sale. The Trouble Is, They Could Stay That Way.

Stocks Are On Sale. The Trouble Is, They Could Stay That Way.

One of the worst downturns the US has experienced in recent history was the Great Recession from December 2007 to June 2009. The economic crisis was caused by the collapse of the housing market, which was fueled by low interest rates, cheap lending, poor regulation, and hazardous subprime mortgages. The S&P 500 briefly fell to the apocalyptic value of 666 on March 6, 2009, and reached its closing low of 676 three days later. It was a mess. I remember watching stocks in freefall. Company share prices were getting cheaper daily and investors were starting to panic. The market took big casualties during the period, including investment banks like Lehman Brothers and Bear Stearns. I remember thinking it was bad, but also thought this couldn’t last forever, and I got to work preparing my watch list of stocks I wanted to buy. It was probably the first time I had really methodically gone through companies very carefully knowing that an opportunity was coming, and I wasn’t going to miss it. This is an exercise I continue to practice today.

Market peaks and troughs come in many different disguises. A look at history will tell you this. I get a little tired of commentators comparing what happened “before” to what is happening now. Nothing is ever the same in history and the world changes daily. New investors come along with different habits and market cycles are forever morphing into different forms. What never seems to change are investors’ emotions. This is the one thing you can rely on to drive markets (usually incorrectly) most of the time, something which few commentators ever recognize or speak about. They are usually caught up in it themselves. They are purveyors of bad news. Investors chase quick money as prices rise and flee in fear when they decline on future news flow. Nothing can be further to what you need to be successful. Remember, risk decreases as the market falls as companies become cheaper, it doesn’t increase. It just may seem like the opposite.

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Bloomberg – Tesla Shares Get Hit On Risk That Musk Must Sell to Buy Twitter

Bloomberg – Tesla Shares Get Hit On Risk That Musk Must Sell to Buy Twitter

Elon Musk’s surprising decision to revive his offer for Twitter Inc. this week sparked a rally in the social-media company’s shares. For Tesla Inc.’s stock, however, it is an ominous sign. The electric-vehicle maker’s shares have struggled through the billionaire’s highly public pursuit of Twitter, his subsequent efforts to wriggle out of the deal and the related lawsuit that brought it all to a head.

Alternatives to share sales include another round of private funding and Musk pledging his Tesla stake for a loan. But liquidating some stock will likely be part of the plan, said Jim Osman, founder of special situations research firm The Edge Consulting Group. “The quickest option to execute among the above is to sell Tesla shares,” he said. “I think it will be a mix of all the above three, but with more than 50% of the remaining $7 billion to come through selling of Tesla shares.”

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The Stock Market Will Only Bottom When Company Executives Start Buying Their Own Shares. They Are Not.

The Stock Market Will Only Bottom When Company Executives Start Buying Their Own Shares. They Are Not.

To make gains and be ahead of the masses in the stock market, I frequently say, look in places that others are not looking. Further, smart investing is about looking in the right places. It’s not about being first contrary to popular belief. The rub? You usually have to do a little more work and that doesn’t fit well with most investors these days who are after a quick profit. Monitoring company executives buying and selling their own shares is an absolute must for our firm and clients and an essential ingredient to analyze when approaching an investment.

I mean, why wouldn’t you want to buy and sell with the people who actually know what’s going on in their company? Of course you would, but the interpretation and mimicking of their stock transactions can leave you with big losses if you fail to do the analysis and just blindly do what they do. Lets clarify the concept of trading by company executives in their own shares, because it’s not always entirely obvious.

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Wealth Can Be Created On The Way Down In The Stock Market. It’s Just Not Obvious. Here’s How.

Wealth Can Be Created On The Way Down In The Stock Market. It’s Just Not Obvious. Here’s How.

Warren Buffett’s lesser known right hand man Charlie Munger once said, “If you’re going to invest in stocks for the longer term, there are going to be periods when there’s a lot of agony. I think you just have to learn to live through them.”

The last ten months have been very rough to say the least if you are a stock investor. The S&P 500 Index is down 22 percent year to date, but that isn’t representative of the base of the 24 million new investors that have come to the market in the last two years. The fun times are over. Those days of watching stocks go up with quick profits are gone for the foreseeable future it appears. With some of the most darling popular (Meme) companies at the time losing between 50-70 percent, and in some cases, like Peloton Interactive, Inc. (PTON) losing over 90 percent of its value, it has forced some investors to either throw the towel in or turn into unwilling “long-term investors” with companies that may never see the light of day again. Refer to the fallout from the 2000 collapse.

So what should you do now?

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