![]() Unfortunately, Blockbuster was spun off just as the industry began to experience big changes. Off, but before doing so arranged for the company to borrow $1 billion and pay a $905 million special dividend. Sell the video rental company, its parent, Viacom, spun it Show faster earnings improvement by easily discarding a low- or no-growth business.Īnother example is Blockbuster. A spinoff is thus not only an alluring and convenient way to clean up the parent’s balance sheet, it is also a way for managers to The alternative is a sale of the company, but that requires someone to buy it. The decision is simply made by the board. The reason a spinoff is a preferred way to get rid of businesses a company no longer wants is that shareholders have no choice in the matter. Idearc’s bankruptcy trustee later sued Verizon, claiming that the spinoff was a convenient way to get rid of a business Verizon did not know what to do with. Idearc, a print and online directory business, soon The world without the resources to survive, let alone thrive.Īnother example is Idearc’s spinoff from Verizon.īefore being set free, Idearc claims that it took on $9 billion in debt to pay Verizon, also transferring some $2 billion in cash to Verizon. The company went bankrupt and is still litigating with Andarko, which later acquired Kerr-McGee, over allegations that the company had been sent off into Which it used to pay a pre-spinoff dividend to the parent. It was given all of Kerr-McGee’s environmental liabilities plus $200 million in debt, Take Tronox, the world’s third-largest maker of pigment titanium dioxide, which was spun off from Kerr-McGee in 2006. ![]() This is often management’s best opportunity to burnish its own company at another’s These deals show the temptation lurking in a spinoff: liabilities can be freely attached to the company being spun off. The result sent both spinoffs into bankruptcy. ![]() Both automakers larded the subsidiaries with too much debt, high labor costs and sweetheart pricing deals. In 1999, General Motors spun off its auto parts maker into Delphi, and the following year, Ford Motor did the same with Visteon. Last year, there were 85 spinoffs worldwide worth $109 billion, according to Dealogic, down just a bit from 93 spinoffs worth $128 billion in 2011.īut spinoffs have a dark side, as they can serve as a convenient dumping ground. Spinoffs, not surprisingly, are big business these days on Wall Street. Studies of spinoffs have found that they produce short-term gains, although these gains evaporate over the long term. And because Wall Street is a place where magic works, the market will recognize this, giving each of the separated companies a higher price. The business argument for a spinoff is typically that a separation of the assets allows both the former parent and the newly independent company to be better run, freeing management to take bolder steps with the newĬompany. Yet as shareholders of Time Warner may be about to find out, it can also be all about subtraction, as a company ditches an unwanted business, in this case, magazines. A spinoff is a product of Wall Street math that says one plus one can equal three.
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