tag:blogger.com,1999:blog-7905515.post2780167854690777738..comments2024-03-14T11:09:32.759-05:00Comments on Falkenblog: The Spin-Off AnomalyEric Falkensteinhttp://www.blogger.com/profile/07243687157322033496noreply@blogger.comBlogger7125tag:blogger.com,1999:blog-7905515.post-20222822229659709592013-02-27T10:06:14.200-06:002013-02-27T10:06:14.200-06:00DNB stock after the spinoff performed not worse th...DNB stock after the spinoff performed not worse than the MCO. The latter one suffered from the financial crisis a lot.<br /><br />Please check the fact first.<br />Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-7905515.post-18336276207874325082013-02-26T19:51:20.074-06:002013-02-26T19:51:20.074-06:00JLonsdale is correct. The feeling of employees tha...JLonsdale is correct. The feeling of employees that they can focus on their business must be a big advantage of these spin-offsGreenWorld Alternative Investmenthttp://www.greenworldbvi.com/alternative-investments-options/noreply@blogger.comtag:blogger.com,1999:blog-7905515.post-14366409989399878902013-02-26T17:37:24.435-06:002013-02-26T17:37:24.435-06:00Isn't the rational explanation exactly what yo...Isn't the rational explanation exactly what you mentioned? That the better aligned incentives and morale boost after the spin off outweigh whatever synergies they had with the larger company had before the spin off?<br /><br />The other explanation, mentioned above, that investors will generally sell spin offs which perhaps gives them a relatively low initial valuation also makes sense.JLonsdalehttp://unpleasantfacts.comnoreply@blogger.comtag:blogger.com,1999:blog-7905515.post-21489616915257862782013-02-26T12:26:17.405-06:002013-02-26T12:26:17.405-06:00Isn't it just aliasing a small/mid cap effect?...Isn't it just aliasing a small/mid cap effect? You could overlay the SML or MID or other benchmark, but I think that the constant index rebalancing makes these poor comparative measures in any event. Moreover, I'd suggest that the spinoff universe/portfolio looks nothing like any of the benchmarks, i.e. it is dominated by companies with lower-betas and longer operating histories significantly longer than the avg mid or small index. It also has far less "binary companies" (biotech, technology etc.) and few financials which explains the index drag post-crisis.<br /><br />--Cass<br /><br />http://nihoncassandra.blogspot.com/Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-7905515.post-58162838391643997902013-02-26T09:24:42.222-06:002013-02-26T09:24:42.222-06:00Ahh…the forces of divestiture and conglomeratizati...Ahh…the forces of divestiture and conglomeratization eternally wrestling with each other like gravity and energy in the cosmos.<br /><br />How about this for a rational explanation:<br />Spin-offs generally result in more “pure play” stocks which then become more accurately valued in the marketplace. When the pre-spun-off business are tied up in larger companies, that component of the parent co. share price tends to be undervalued (due to uncertainty, lack of transparency, their tendency to be used to fund weaker siblings etc.) as opposed to fairly or overvalued – thus the outperformance of both parent and especially child post spin-off.<br /><br />The arguments for mega-banks like Citi are the semi-mythical appeal of “one stop shopping” to the consumer and economies of scale in general which only foreign banks would have if we aren’t allowed to build our own monsters. The brokerage arms of mega-banks now rely more on their parent co.’s (zero interest) deposit base for capital instead of the bond market so I doubt much potential would be unlocked by a spin-off for that particular part of the business. Jefferies, the last decent sized broker/dealer not married up with a deposit taking institution, just tied the knot with Leucadia largely for this very reason. Citi has more or less the same model as the other mega-banks, they just happen to suck at executing on it so it’s possible that the sum of their parts is more valuable than the current configuration only because of bad management. But generally bigger banks like JPM have higher IRRs than smaller banks these days and probably the only advantage smaller banks now have is a capability for better, less formulaic underwriting and more accurate, hands-on risk assessment – but that’s not moving the needle much right now.<br /><br />TBTF banks do have natural advantages over smaller banks (the compliance burden alone!) but we’re better off when most S&L type banking is utilitarian, boring and pretty tightly regulated (a view expressed by Taleb, parts of Dodd-Frank and certainly many others). I would argue that TBTF is simply too big because of the systemic risk and moral hazard issues that are inseparable from that model (a view certainly not expressed in Dodd-Frank).Mercurynoreply@blogger.comtag:blogger.com,1999:blog-7905515.post-45422423024628052952013-02-26T09:11:01.929-06:002013-02-26T09:11:01.929-06:00Value investor Joel Greenblatt noted the relative ...Value investor Joel Greenblatt noted the relative high performance of spin-offs in his first book published in 1999. He attributed the high returns at least partially due to a depressed price for the new shares at time of spin-off. Typically, parent company shareholders were uninterested in the spin-off because it was in a substantially different from the parent's. So, they tended to dump the spin-off shares immediately.John McCormacknoreply@blogger.comtag:blogger.com,1999:blog-7905515.post-1795043360620771492013-02-25T22:19:21.497-06:002013-02-25T22:19:21.497-06:00Did the companies that spun off subsidiaries under...Did the companies that spun off subsidiaries underperform? My guess is no, i.e. they were holding the spin-off back with their bureaucracy. Esp. as an industry sector matures, I think companies do better with decentralized control.Anonymousnoreply@blogger.com