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Partial Spin-Off

A partial distribution behaves as a short-term tracking stock or “carve-out.” The company will have an initial 15% to 20% IPO of the valuable subsidiary. Usually, the proceeds will go to the parent company, and at some subsequent date the remaining portion of the subsidiary will be distributed to the shareholders. Here the market results are mixed. In some situations, the market values these businesses at a premium; the future short-term upside may be limited for investors. The investment landscape includes many companies like Kraft Foods, which are great franchises, but may take a decade before their shareholders substantially profit.

The investment strategy for partial spin-offs is more difficult. Often, the hype of the IPO inflates demand, pushing the stock price up, leaving investors in a quandary.

 

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