Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: FRIDAY, September 22, 1995 TAG: 9509220080
SECTION: BUSINESS PAGE: A11 EDITION: METRO
SOURCE: DAVID E. KALISH ASSOCIATED PRESS
DATELINE: NEW YORK LENGTH: Medium
Corporations this year have set a record pace for breaking into smaller pieces, with 53 major companies so far announcing spinoffs in deals totaling tens of billions of dollars, according to Securities Data Co. This week alone, AT&T unveiled a stunning plan to divide itself into three independent companies and ITT shareholders approved proposals to split up the quintessential conglomerate.
But whether it's AT&T Corp.'s breakup or the ``Mary Tyler Moore Show'' begetting ``Rhoda,'' experts cite a similar reason: Investors and TV viewers alike are tantalized by new versions of famous old brands.
Defying an opposite trend by companies hellbent on merging into bigger entities, corporate spinoffs are winning adherents among shareholders enamored of smaller, nimble enterprises, unshackled from unwieldy parents.
``People like freshness,'' said Stan Weinstein, publisher of The Professional Tape Reader, an investment newsletter based in Hollywood, Fla. ``I think the psychology is there.''
Recent converts include General Motors Corp.'s plans to liberate its Electronic Data Systems business, Sprint Corp.'s spinoff of its cellular phone business into a stand-alone company worth $3 billion, and Sears, Roebuck and Co.'s spinoff of Allstate Insurance Co.
Even spinoffs were spun off. Host Marriott Corp., the real-estate business split off from the former Marriott Corp. three years ago, announced plans last month to sever its business that operates food and retail outlets.
Eclipsing the emotional attraction, of course, investors most of all seek to make money, and history shows that spinoffs are a fairly consistent boon to investors and companies. A typical spinoff involves a company shedding a business by giving it to its shareholders in the form of stock in the newly independent unit.
The stock price of a parent company increases an average 3 percent-5 percent on the day it announces a spinoff, said Michael Bradley, a professor of finance at the Fuqua School of Business at Duke University. On the day the deals are completed, the shares of newly spun-off units rise 2 percent-3 percent from the opening prices.
Take AT&T. The huge telecommunications conglomerate's stock price jumped more than $6 a share, or 11 percent, after announcing Wednesday that it was shedding a computer unit and an equipment business to focus strictly on its flagship communications business.
``Most of the big ones worked pretty well,'' said Martin Sikora, editor of Mergers & Acquisitions magazine in Philadelphia. ``The only way to judge them is how they fared in the aftermarket.''
Why do spinoffs work? The reason is analogous to television. Sometimes producers discover that star actors or talented second fiddles, competing for the same spotlight in one show, deserve to shine on their own in a new series.
Similarly, experts say, the type of corporation that makes a good spinoff candidate is a conglomerate of disparate, unrelated lines of businesses, with promising ones often overshadowed by less healthy units of the parent firm.
by CNB