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How do break ups create so much value?

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July 15, 2014 – Comments (1)

Many times when stocks break up, both of the seperate companies rally 30-50%. I don't get this

 

maybe it's better not to have one CEO running two businesses,but often the seperate businesses are almost completely separately run other than for financial reporting purposes, so that can't explain so much of a jump

 

i understand that seperate investors want to invest in seperate sectors, but it's hard to see somebody thinking two companies are worth so much more when they have two ticker symbols than when they just have one

 

to me it seems like an investor is willing to pay $15 for having two five-dollar bills rather than a 10

1 Comments – Post Your Own

#1) On July 17, 2014 at 9:02 AM, lemoneater (71.35) wrote:

It's all about historical performance. Having been rewarded beyond my expectations by a spinoff I now look for ones that have mature business plans with a focused market.

When Duke Energy spun off Spectra Energy, I invested in both the parent and the young adult. Duk did not do badly for me, but SE outstripped its parent in growth. While I regard many IPO's as baby companies with all the associated risks of caring for infants, most spinoffs seem to be young adults ready for independence and wanting to prove themselves.

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