U.S. Spin-Off Bust Goes Boom

October 30, 2014

45412011 was a great year for spin-offs. Seventy-two deals were announced, including three of the largest U.S. transactions of all time: AbbVie (#1, $56 billion), Kraft Foods Group (#2, $26 billion), and Phillips 66 (#7, $22 billion). To all appearances, the spin-off market, decimated by the financial crisis of 2008, was back. 2012, however, with only $30 billion in completed transactions, seemed to signal that 2011 was a fluke, rather than a harbinger. But in 2013 spin-offs came back, again. Seventy-seven deals were announced, although, at $39 billion, the value of completed transactions fell well short of 2011’s $100 billion apogee. Data from 2014 suggests that the spin-off renaissance is continuing. Sixty-two deals have been announced thus far. More importantly, several deals are very large. None of the announced transactions will top AbbVie, but the bifurcation of Hewlett-Packard and eBay’s distribution of PayPal will likely be among the largest US spin-offs since 2005.

final_value

Largest Completed U.S. Spin-Off Transactions, 2005 – 2013

Target Name Announc. Date Transaction Value (USD)
Abbott Laboratories-Research- Based Pharmaceuticals 10/19/11 55,513,051,000.00
Kraft Foods Inc 1/31/07 51,004,959,000.00
Time Warner Cable Inc 4/30/08 34,569,110,000.00
Viacom Inc-Cable Network Business 6/14/05 32,098,415,000.00
Kraft Foods Inc-North American Grocery Business 8/4/11 26,084,729,000.00
Tyco Healthcare Group Ltd 1/13/06 22,798,258,000.00
ConocoPhillips Co-Refining & Marketing Business 7/14/11 21,529,075,000.00
Tyco Electronics Ltd 1/3/06 19,254,616,000.00
Duke Energy Corp-Natural Gas Transmission Business Unit 6/28/06 17,962,986,000.00
Discover Financial Services 12/19/06 15,097,555,000.00

In 2014, a number of large companies elected to spin off small business units. Comcast, for instance, announced its intention to shed 2.5 million mid-western subscribers (slightly more than 1% of total subscribers) by forming a new public entity called GreatLand Connections. Hess Corp announced the spin-off of its retail arm, but abandoned its plan when Marathon Petroleum agreed to acquire the business. The Hess transaction highlights the historical tendency of many announced spin-offs to remain unexecuted.

final_announced_completed

Some small spin-offs were of profitable units – e.g. Kimberly-Clark’s Halyard Health, and National Oilwell’s NOW Inc., Several were units in new industries, easily identified by their trade mark-friendly names:

Nuvola: smart home solutions

Enova: electronic payments

Vectrus: military technology solutions

Also distributed were a number of old industry businesses, including the newspaper operations of Gannett Co., EW Scripps, and Journal Holdings. Over the last five years, media units have been frequent spin-off candidates, as have technology, financial services, and bio-pharmaceutical businesses.

final_by_sic

Finally, 2014 saw a number of spinoffs that amount to nearly equal splits, including the aforementioned division of HP, Agilent’s spin-off of Keysight (43% of revenue), Baxter International’s distribution of its biopharma business (43% of sales), and eBay’s spin-off of PayPal (38% of revenue).

Data for this survey was compiled using:

The Business Law Center and

What’s Market, Spin-Offs