With the much-anticipated listing of Fairfax Media Limited's (ASX: FXJ) online real-estate business Domain set to occur in a matter of weeks, now could be a good time to consider how some other high-profile spin-offs have performed on the ASX.
Orora Ltd (ASX: ORA) was listed in December 2013 after global giant Amcor Limited (ASX: AMC) demerged its Australasia and Packaging Distribution business. Since then shares in Orora have increased 175% compared to Amcor's relatively poor 40%. Orora has been expanding its North American operations of late and appears set for growth.
South32 Ltd (ASX: S32) with its diversified mining assets spread across Australia, Southern Africa and South America was mockingly referred to as "CrapCo" around the time of its split from BHP Billiton Limited (ASX:BHP) in May 2015. However, since listing, South32 shares have easily outperformed their former parent, up 55%, while BHP has fallen 11% over the same timeframe.
Macquarie Atlas Roads Limited (ASX: MQA) was split out of Macquarie Infrastructure Group in February 2010 and has significant interests in toll roads in the United States, France, and Germany. Macquarie Atlas Roads shares have been a stellar performer since listing, up close to 565%.
National Australia Bank Ltd's (ASX: NAB) troublesome UK bank Clydesdale & Yorkshire Bank was divested in February 2016, and is known by Google Finance as CYBG PLC CDI 1:1 (ASX: CYB). NAB spent considerable time and money cleaning up Clydesdale & Yorkshire Bank before it was sold at a discount to book value. Despite the overhang of Brexit, CYBG's share price has risen 25% since the divestment, whilst NAB is up 20%.
Foolish takeaway
Spin-offs can often be attractive investments for several reasons;
- Management of the spin-off can focus on that specific business segment without the distraction of troubled or underperforming areas of the parent company
- Parent companies do not want the spin-off to fail, as this could reflect badly on the parent
- Management of the spin-off may now have greater power and freedom to cut costs and streamline the business
- It is common for investors of the parent to be allocated shares in the spin-off on a proportional basis. Large investors with a significant stake in the parent company could cause problems if they believe they are being sold a dud
Domain could well be another spin-off success story; already a profitable business that has been operating its flagship website domain.com.au since 1999.
Another positive under the proposed arrangement is that Fairfax will retain 60% ownership of Domain and existing shareholders the remaining 40%.
