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Strategies & Market Trends : Graham and Doddsville -- Value Investing In The New Era -- Ignore unavailable to you. Want to Upgrade?

To: porcupine --''''> who wrote (1426)	3/6/1999 8:22:00 PM
From: porcupine --''''>	Read Replies (2) \| Respond to of 1722

[Re: HWP] Do Corporate Spin-Offs Pay Off? By The Associated Press NEW YORK (AP) -- This week, Lew Platt, chief executive of Hewlett-Packard made one of the most defining decisions of his career -- splitting the computer and electronics giant into two separate companies. Will it pay off? A recent study shows the most successful corporate splitups are much smaller than Hewlett-PackardUs $68 billion market value. The management consultant McKinsey & Co. looked at more than 130 of them over the past decade and found that the best performers were companies with a market value below $1 billion. Before the spinoff, Rsmaller companies donUt get (as much executive) attention, as the larger companies do,S said Warren Batts, a professor of strategic management at the University of ChicagoUs Graduate School of Business. RWhen they stand alone and they can move the needle on their stock, their motivation level, by and large, goes up substantially.S So smaller splitups tend to hit the market with turbocharged stocks. In their first two years on their own, these newly minted companies returned an average of 32 percent to shareholders, assuming dividends are reinvested. Splitups of larger companies, however, returned just 13 percent during the same period, which was below the 17 percent return of the Standard & PoorUs 500 Index, according to the McKinsey study. Executives at McKinsey, which reportedly advised Hewlett-Packard on its breakup, declined to comment for this story. One big splitup that has yet to show promise is Hilton Hotels Corp. The Los Angeles-based company jettisoned its gambling operations in December, creating Park Place Entertainment Corp. The stock, which began trading in January at $7 a share, closed unchanged Friday at $7.50. HiltonUs own stock is also flat for the year. ThatUs not to say, however, that spinning off large holdings is a bad idea. RWhen the two companies are not dependent on each other for any significant reason ... then spinning them off normally takes out a layer of administration and speeds up the responses of each organization to its market needs,S said Batts, who sits on several corporate boards and has been involved in several spin-offs. ThatUs what Hewlett-Packard is thinking. The Palo Alto, Calif.-based company plans to retain its computer, printer and software businesses and break out its divisions that make medical products and devices that measure performance in everything from semiconductors to wireless communications. Those businesses accounted for $7.6 billion of H-PUs sales of $47.1 billion last year. RWe believe we can make two new companies that are more focused and more nimble,S Platt, H-PUs chief executive, said Tuesday. Hilton Hotels hopes that it will have more flexibility as an independent company. RAs a combined company, you had to make decisions,S explained Marc Grossman, a Hilton spokesman. RDo we acquire a gaming company, and does that mean we canUt make a hotel acquisition?S One large-capitalization company that made the split work was AT&T, which kept its long-distance business while spinning off its computer company, NCR Corp., and its telecommunications equipment company, now called Lucent Technologies Inc. Before the breakup AT&T had a market value of about $75 billion. Today, trading separately, the three companies have a combined value of $287 billion. Analyst and investors like some splitups because the companies are easier to evaluate when theyUre separate. On Wall Street, they call it a Rpure play.S For instance, Sears Roebuck & Co. several years ago abandoned its strategy of becoming a financial supermarket and split off its Dean Witter brokerage. The result: a whole new group of analysts started covering the brokerage company and making recommendations its the stock. RThe analysts who follow a business are specialists,S Batts said, RIn automotive, (for example) they donUt want to be specialists in consumer finance and whatever else -- life is tough enough.S