SCOOPING UP SPIN-OFFS
SCOOPING UP SPIN-OFFS
Time Warner announced on May 28 it would finally undo one of the worst-performing mergers of all-time by spinning off its AOL division. AOL was no bargain in 2000 but may be worth a look now. Voluminous academic research has concluded that corporate castoffs often outperform the market over the three years after they're cut loose. But investors must scrutinize the spin-off terms to ensure the freed unit isn't saddled with excessive debt or other liabilities.
It's too soon to analyze the AOL deal, but William Mitchell, editor of newsletter Spinoff & Reorg Profiles, likes some other deals. Potlatch spun off Clearwater Paper, its pulp mill operations, in December. The unit has no debt and won an IRS ruling to qualify for a lucrative alternative energy tax credit. If the ruling stands, Clearwater is trading for less than two times what it's likely to earn this year, he says. In May, Hutchison Telecommunications International spun off its Hong Kong and Macau operations as Hutchison Telecommunications Hong Kong Holdings. Shares trade for roughly the company's tangible book value, even though the profitable unit has had rapid earnings growth for several years.
Copyright 2009 BusinessWeek
