These spinoffs, after the de-merge process will trade very less than its intrinsic value. Might be it will be very cheap compared to its similar companies in the market. One should carefully study these kind of spinoffs to get invested
We should see if the new management is purchasing the shares of the spinoffs. If so, it has the greater possibility of being a multi-bagger. These kind of spinoff companies has the greater margin of safety. Margin of safety is the main aspect in any investing, which can be easily achieved in quality spinoffs
A demerger process in India involves below steps:
- Board Approval
- Stock Exchange Approval
- Creditors & Shareholders Approval
- National Company Law Tribunal (NCLT) Approval
- Record date announcement by board
- Listing of the De-merged entity
What will happen to the existing shareholders of the Parent company during Spinoff ? The shareholders of the parent company will get certain number of shares of the spinoff company as the special divided during the spinoff. This is sometimes considered as positive and sometimes as negative, depends on the company
Types of Spinoff:
- No Ownership Spinoff: The parent company maintains Zero ownership of the spun off company. All shares are distributed among existing shareholders
- Partial Ownership Spinoff: Parent company can retain upto 20% of ownership in the spun of company
Few famous companies which underwent Spinoffs are
- In 1999, Hewlett-Packard Co spun off Agilent technologies Inc
- In 2011, Expedia created spinoff company TripAdvisor
- In 2017, eBay created spinoff company PayPal
Few recent spinoff companies in India, took place in 2020:
- Suven Pharmaceutical Limited - 22nd January 2020
- Tata Chemicals Limited - 5th March 2020
- Max India - 15th June 2020
Let's have a look on these companies stock performance
Have a Great Day
B G Nareshkumar
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