Real Estate Investment Trust
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
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.