In this article, we will take a look at the 13 spin-off companies in 2023.
After seeing a rapid decline immediately after the pandemic, spin-offs started to gain popularity again. The total global volume of completed spin-offs jumped to $203 billion in 2021, compared with $95 billion in 2020 and $179 billion in 2019. An interesting report by Wachtell, Lipton, Rosen & Katz takes a look at the reasons behind spin-offs. The report said that shareholder activism and push from activist funds is one of the biggest reasons behind spin-offs. The report said that as of the end of December 2021, “12% of global M&A activism called for break-ups or divestitures – lower than 2019 and 2020, but higher than 2017 and 2018.”
What is the Benefit of Investing in Spin-Off Companies?
Spin-offs are deemed as value maximizers and data has shown that spin-off companies do well. A research paper by academics sees some data that analyzes the possible benefits and cons of investing in spin-off companies and parent companies of newly independent companies. The paper quotes research from McConnell and Ovtchinnikov. This research analyzes parents and spun-off subsidiaries for which data are available for the years 1965 to 2000.
This study measured performance of two benchmarks over the 36 months following spin-offs and found that spun-off companies’ shares outperform benchmarks over the first 22 months following the spin-off and trade in line with the benchmark thereafter. The study also found that the parent companies’ shares also outperform their benchmarks by an impressive margin “but the pattern is slightly different for parents that outperform the benchmarks over the first 15 months following the spin-offs and then level off.” Based on this data, the research paper deduces that it’s best to buy shares of newly spun-off companies “as soon as they become available” and hold them for 22 months. In addition to this, it’s also advised by the report based on the above research to buy shares of parents of newly spun-off companies and hold them for 15 months.
The report also mentions some important spin-off events triggered by hedge fund activist investor activity. It’s important to note that whenever an activist hedge fund pushed a company for a spin-off, in many cases the parent company’s stock jumped as investors deem possible spin-offs as a positive sign.
“Evidence of the interest in spin-offs as a desirable corporate undertaking is not difficult to find. For example, in May 2012, Trian Fund (under the direction of co-founder and activist investor Nelson Peltz) acquired a 7.1% ownership position in Ingersoll Rand. The fund immediately called for management to restructure certain of the company’s business units ( Jones, Chon, and Benoit [2012]). On that day, company shares increased by 5.4%. In December of the same year, after initial resistance, the company announced its intent to spin-off Allegion, its commercial and home security division. Other activist investors have recently followed similar strategies. During January 2014, Carl Icahn acquired a 0.82% stake in eBay for roughly $625 million, and immediately called for management to spin off the company’s PayPal holdings (Bensinger [2014]). In the same month, Third Point took a $1 billion position in Dow Chemical and urged the firm to spin off its petrochemical unit (Herbst-Baylis and Scheyder [2014]). And in July 2014, Elliott Management acquired a 2% stake, valued at over $1 billion, in EMC Corp and urged the company to spin off VMware.”
The report also says that spin-off activity tend to increase during periods of robust stock market performance. It mentions data according to which spin-off activity saw two peaks during the period between 2001 and 2012. During these two peak years (2002 and 2008), spin-off activity touched its peak. This peak was the result of a solid stock market activity. But when the markets decline, spin-off activity abates. The report said:
“Not coincidentally, the S&P 500 index achieved relative peaks during the prior 12 to 18 months, reaching a relative peak of 1,517.68 in August 2000 and another relative peak of 1,549.38 in October 2007. Those peaks were followed by severe stock market dips and significant declines in spin-off activity, with only 10 events in 2003 and just six in 2009.”
Pixabay/Public Domain
Our Methodology
For this article we used stock screeners and manual research to identify spun-off companies in 2023. We only picked spin-offs completed in 2023. We did not talk about companies that are set to be spun-off in the late half of 2023 or 2024.
Spinoff Companies in 2023
13. PHINIA Inc. (NYSE:PHIN)
Number of Hedge Fund Holders: N/A
US-based automotive supplier BorgWarner Inc. (NYSE:BWA) earlier this year completed its spin-off of Fuel Systems and Aftermarket segments into a separate, publicly-traded company named PHINIA Inc. (NYSE:PHIN).
PHINIA Inc. (NYSE:PHIN) last month announced a quarterly dividend of $0.25 per share. Dividend yield came in at 3.73%. The dividend is payable September 22 for shareholders of record as of September 12.
12. Toro Corp. (NASDAQ:TORO)
Number of Hedge Fund Holders: 1
Shipping company Castor Maritime (NASDAQ:CTRM) completed its spinoff of Toro Corp. (NASDAQ:TORO) earlier this year. Recently Toro Corp. (NASDAQ:TORO) posted second quarter results. GAAP EPS in the second quarter came in at $0.92. Revenue in the period fell 3.5% year over year to $24.9 million.
11. Star Holdings (NasdaqGM:STHO)
In March this year, Safehold Inc. (NYSE:SAFE) closed its merger of iStar Inc. Before the merger iStar completed the separation of its legacy assets and certain other assets through the distribution of all of the common shares of Star Holdings (NASDAQ: STHO) to holders of record of iStar common stock as of the close of business on March 27, 2023 in a spin-off transaction.
Last month Goldman Sachs started covering Safehold (NYSE:SAFE) with a Buy rating as the firm believes the stock has opportunities when interest rates pressures will subside.
“Over time, as restructuring activity picks up in the near term, and as refinancing and transaction activity recovers over the medium term, we expect SAFE’s earnings and value growth will be driven by investment volumes, and yield,” Goldman Sachs’s Caitlin Burrows said.
10. C3is Inc. (NASDAQ:CISS)
Number of Hedge Fund Holders: 1
Imperial Petroleum provides seaborne transportation services for energy companies. Earlier this year the company completed the spin-off of its previously wholly-owned subsidiary, C3is Inc. (NASDAQ:CISS), the holding company for two dry-bulk carriers, effective June 21, 2023.
Earlier this month the company posted first-half results. Revenue in the period came in at $4.9 million for the six months period ended June 30, 2023 corresponding to daily TCE1 of $12,145.
9. Fortrea Holdings Inc. (NASDAQ:FTRE)
Number of Hedge Fund Holders: 3
In July, laboratory services company Labcorp (NYSE:LH) completed its spin-off of Fortrea Holdings Inc. (NASDAQ:FTRE). Last month Barclays started covering Fortrea (NASDAQ:FTRE) with an Equal Weight rating. The firm said Fortrea Holdings Inc. (NASDAQ:FTRE) has “plenty of room” for expansion and topline acceleration in 2024-2025.
8. Atlanta Braves Holdings, Inc. (NASDAQ:BATRA)
Number of Hedge Fund Holders: 10
Liberty Media Corp (NASDAQ:LMCA) in July completed the split-off of Atlanta Braves Holdings, Inc. (NASDAQ:BATRA).
7. Vitesse Energy, Inc. (NYSE:VTS)
Number of Hedge Fund Holders: 15
Jefferies Financial (NYSE:JEF) earlier this year completed the spinoff of Vitesse Energy, Inc. (NYSE:VTS) as an independent company. Warren Buffett’s Berkshire Hathaway (NYSE:BRK-B) sold its stake in the company during the second quarter.
In July Vitesse Energy, Inc. (NYSE:VTS) posted second quarter results. Net income in the quarter came in at $9.6 million. Revenue in the quarter fell 34.5% year over year to $51.59 million, missing estimates by $7.31 million.
6. Sealsq Corp (NASDAQ:LAES)
Number of Hedge Fund Holders: 1
Cybersec and IoT solutions company WISeKey International in Mach said the SEC had declared effective its S1 form for the partial spin-off of SEALSQ, which was its subsidiary for its semiconductor business.
5. Knife River Corporation (NYSE:KNF)
Number of Hedge Fund Holders: 27
MDU Resources Group Inc. (NYSE:MDU) earlier this year completed the spinoff of its construction materials subsidiary, Knife River Corporation (NYSE:KNF). The construction material company’s stock received an Outperform rating in August from Oppenheimer. The firm said Knife River Corporation (NYSE:KNF) is poised to grow amid increasing spending on roads and infrastructure.
Oppenheimer said:
“Knife River Corporation (NYSE:KNF) operates in a highly attractive industry; aggregates and construction materials are critical to public and private construction projects and bountiful tailwinds exist, including significant state and federal infrastructure spending, meaningful population growth and a dearth of housing stock.”
4. Kenvue Inc. (NYSE:KVUE)
Number of Hedge Fund Holders: 31
Kenvue Inc. (NYSE:KVUE) was perhaps one of the biggest spinoffs of 2023. Johnson & Johnson (NYSE:JNJ)’s unit, which is now publicly trading, raised $3.8 billion through the largest US initial public offering since 2021.
During the second quarter earnings call Kenvue Inc. (NYSE:KVUE)’s management talked about the state of business and also discussed guidance:
“Further, our first half 2023 results benefited from a couple of one-time-in-nature dynamics that we would not expect to continue in the second half. First, our Q1 results were supported by higher-than-normal inventory replenishment, primarily in Self Care and Skin Health and Beauty. This was a result of our retail customers exiting Q4 with lower-than-average inventory levels, generating outsized orders during the quarter as they looked to restock. Second. Globally, there has been an exceptionally strong cold, cough and flu season throughout the first half of the year. While we will be operationally ready for any level of seasonal demand, our outlook contemplates more normal incident rate levels this coming winter. With regards to interest, we expect reported net interest expense to be approximately $270 million and approximately $300 million on an adjusted basis.
Moving to taxes. With regards to the full year, we expect a reported effective tax rate of 34.5% to 35.5%. On an adjusted basis, we expect the range to be between 24.5% and 25.5%. The higher rate versus prior year is primarily driven by jurisdictional mix of earnings and less favorable discrete benefits in 2023 as compared to 2022. On the bottom line, we expect full year adjusted diluted EPS to be in the range of $1.26 to $1.31. This range assumes a full year 2023 weighted average share count of 1.855 billion shares. As we look to the back half, we continue to operate in a challenging environment with ongoing pressures from labor costs, raw materials, packaging and foreign exchange volatility. While our guidance reflects a variety of scenarios, we remain focused on the things that we can control and will utilize the levers within our operating model to mitigate these headwinds.”
Read the full earnings call transcript here.
3. Madison Square Garden Entertainment Corp. (NYSE:MSGE)
Number of Hedge Fund Holders: 36
Live entertainment company Sphere Entertainment Co. spun off Madison Square Garden Entertainment Corp. (NYSE:MSGE) earlier this year. In August, BofA started covering Madison Square Garden with a Buy rating. The firm called the stock a “growth-oriented, pure play on live entertainment.”
BofA analyst Peter Henderson said that spun off company is an “attractive opportunity” for investors who want to own a live entertainment company, thanks to its solid market position.
As of the end of the second quarter of 2023, 43 hedge funds tracked by Insider Monkey had stakes in Madison Square Garden Entertainment Corp. (NYSE:MSGE).
Ariel Small Cap Value Strategy made the following comment about Madison Square Garden Entertainment Corp. (NYSE:MSGE) in its Q2 2023 investor letter:
“Additionally, live entertainment business, Madison Square Garden Entertainment Corp. (NYSE:MSGE) completed its spin-off from Sphere Entertainment Co. (SPHR) in the quarter. The company’s portfolio includes a collection of venues, such as New York’s Madison Square Garden, Radio City Music Hall, Beacon Theatre and The Chicago Theater. MSGE also features the original production of the Christmas Spectacular starring the Radio City Rockettes. In our view, MSGE’s assets are stable cash flow generators and should enable deleveraging. At current valuation levels, the company is trading at an attractive 40% discount to our estimate of private market value.”
2. Crane NXT, Co. (NYSE:CXT)
Number of Hedge Fund Holders: 42
In April, Crane NXT, Co. (NYSE:CXT) was spun off from Crane Company and announced that it’d start trading independently under the ticker symbol CXT. The now standalone cash/payments business provides key technologies to empower the backend of payment transactions. Its Crane Payment Innovations segment accounts for about 65% of the firm’s revenue.
In August Crane NXT, Co. (NYSE:CXT) posted second quarter results. Second quarter EPS came in at $1.12 beating estimates by $0.21. Revenue in the period jumped 5.5% year over year to $352.4 million, beating estimates by $15.87 million.
The company’s management talked about the spin-off and the company’s path ahead in an earnings call and said:
“Now that the separation is complete, Crane Company is a streamlined and more focused leading technology business. The market’s reaction since we announced the separation in March of last year, validates our strategy with substantial value already unlocked and we are confident that even more significant value creation lies ahead. The new Crane Company, as we described on Investor Day, has about $2 billion in sales and $335 million in adjusted EBITDA this year, a 4% to 6% long-term core sales growth rate from resilient and durable businesses that derive about 40% of strategic growth platform sales from the aftermarket, with substantial operating leverage on top of already solid margins today, and that should lead to double-digit average annual core profit growth with potential upside from capital deployment and starting with net debt to EBITDA at about 0.2 times the capital deployment opportunity is significant.”
Read the complete earnings call here.
1. GE HealthCare Technologies Inc. (NASDAQ:GEHC)
Number of Hedge Fund Holders: 44
GE HealthCare Technologies Inc. (NASDAQ:GEHC) was spun off from General Electric (NYSE:GE) earlier this year. Year to date GE HealthCare Technologies Inc. (NASDAQ:GEHC) has gained about 18% through August 12. GE HealthCare Technologies Inc. (NASDAQ:GEHC) and Boston’s Mass General Brigham hospital group said they have developed an AI algorithm for radiology scheduling with an ability to predict missed or late appointments with up to 96% accuracy.
Hedge funds were quick to pile into GE HealthCare Technologies Inc. (NASDAQ:GEHC), as Insider Monkey’s database of 910 hedge funds shows that 44 hedge funds reported owning stakes in GEHC.
VGI Partners made the following comment about GE HealthCare Technologies Inc. (NASDAQ:GEHC) in its second quarter 2023 investor letter:
“GE HealthCare Technologies Inc. (NASDAQ:GEHC) is a global medical technology leader in the Imaging, Ultrasound and Patient Monitoring space. Having initiated a position shortly after it was spun out of parent company GE in late 2022, the stock has become one of our core holdings. We will discuss the investment thesis and upside potential in greater detail later in this letter.
One of our recent new investments is GE HealthCare (GEHC), which was spun out from General Electric (GE) in late 2022. Currently it is our third largest position due to a combination of strong performance and growing the weight (we initiated a position when the company was spun off).
GEHC is a leader in Imaging and Ultrasound machines, which includes PET and CT scans, MRI, X-Ray and ultrasounds – these account for nearly three quarters of revenues. GEHC is a global business with revenues well spread between the US, Europe, China and emerging markets. The business model is both predictable and resilient in our view:…” (Click here to read the full text)
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Disclosure: None. 13 Spin-off Companies in 2023 is originally published on Insider Monkey.
