Why Investors Need to Be Cautious When Companies Split, Says The Edge
Sep 29, 2015
By Janet Morrissey, Senior Writer, TheStreet: As companies fret over the current market selloff and uncertain economy, a growing number of them are turning to spinoffs to boost shareholder value. Aluminum maker Alcoa (AA – Get Report) became the latest to announce plans to split into two separate companies on Monday. But experts caution the spinoff arena is getting crowded so investors need to scrutinize each plan carefully for debt levels, pricing, sector market performance and other factors before jumping in.
“We see more and more spinoffs coming to market,” said Jonathan Morgan, a deals analyst at Edge Consulting Group, an equity research firm that specializes in spinoffs. “There’s been a lot of winners in the last two or three years, but in this market we’re seeing a lot more losers coming out.” Activist investors including Carl Icahn and Nelson Peltz have been driving much of the spinoff trend, launching proxy fights and arm-twisting management to spin off businesses into separately traded companies. Basically, they’re making a bet…