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Strategies & Market Trends : Speculating in Takeover Targets -- Ignore unavailable to you. Want to Upgrade?

To: richardred who wrote (1035)	1/29/2006 3:42:54 PM
From: richardred	Respond to of 7253

Wall Street Pressuring Firms to Slim Down Sunday January 29, 3:07 pm ET By Joe Bel Bruno, AP Business Writer Wall Street Want Firms to Slim Down, Creating a Spate of Corporate Spinoffs NEW YORK (AP) -- For corporate America, breaking up isn't hard to do. Fee-hungry Wall Street bankers created a merger and acquisition frenzy in the 1990s by advising companies how to get bigger. Now, investors -- from billionaire Carl Icahn to large hedge funds -- are demanding bloated corporations slim down to boost shareholder value. Spinoffs, it seems, are the companies' vehicle of choice. The past week saw fast-food titan McDonald's Corp. float Chipotle Mexican Grill Inc. on the New York Stock Exchange. First Data Corp. also unveiled plans to jettison its famous Western Union brand into a separate company. An army of bankers are now deciding how to break up conglomerates Tyco International Inc. and Cendant Corp., while Altria Inc. wants to carve out Kraft Foods. Icahn, who became famous as a corporate raider in the 80's, has turned up the heat on Time-Warner Inc. to cut loose America Online. "Investors want these companies to unlock shareholder value, pure and simple," said Mark Keeley, whose family-run Keeley Family of Funds manages $3 billion in assets. "Investment bankers hate to hear this, but 50 percent of mergers don't work -- the result can be bankruptcies or spinoffs." By definition, a spinoff is the sale or distribution of new shares of an existing business of a parent company. Some companies pursue this to purely maximize profit -- as was the case with American Express Co.'s spawning of asset manager Ameriprise Financial Inc. last year. For large conglomerates like Tyco International Ltd., a breakup may be used to make better sense of a corporate jigsaw puzzle where the pieces don't seem to fit. "We believe that separation is a logical next step in Tyco's evolution," Chief Executive Ed Breen said after announcing the company would be carved into three. In a move expected to be completed in the first quarter of 2007, Tyco will separate its health care and electronics divisions from the core security and fire protection business. The breakup followed an extensive strategic review over how to strengthen the overall business and increase its stock price. Breen, put in charge of scandal-ridden Tyco to help resurrect the conglomerate's fortunes, might be able to rest easy. A number of academic studies show that both spinoffs and their former parents outperform the market. Companies that spin off businesses outperformed the Standard & Poor's 500 by about 10 percent for the first three years after the split, according to a report released by Penn State in 1993. The study -- "Restructuring Through Spinoffs" -- examined 25 years of stock market history and found that parent companies also outperformed peers by more than 6 percent yearly after completing a spinoff. Al Cardilli, an analyst with Chicago-based Spin-Off Advisors, said shares of spinoffs tend to be more available than in a regular public offering. That's because investors in the parent companies tend to sell the shares they're given in the spinoff. Further, fund managers with a focus only on the parent company will typically divest the newly issued shares. In 2005, there were 27 spinoffs worth about $55 billion in market value, according to Spin-Off Advisors. The past eight years have seen 344 deals worth about $1.31 billion in market value, the firm said. The biggest spinoff last year was Ameriprise. Since being spun off in October, Ameriprise shares have climbed 21 percent, while American Express is up 5 percent. Entertainment and new media mogul Barry Diller spun off Expedia Inc. in August, and so far the travel Web site giant's stock price has risen 11 percent. IAC/InterActiveCorp, the parent company, has seen its shares rise 16 percent. Investors also say spinoffs attract a lot of market attention on the likelihood the new companies might become acquisition targets themselves -- further boosting the appeal. This is one of the reasons analysts say the pattern of companies beefing up to gain size, then trimming down to focus on their core businesses, is all cyclical. "Each case is specific to an individual company, but the best spinoffs are the ones where the companies are allowed to focus on what they do best," said Tobias Crabtree, a portfolio manager with New York-based Leeb Capital Management, which manages about $110 million of assets. "And in the future, they'll keep coming back to try and unlock shareholder value. That could mean more M&A." biz.yahoo.com