By Alexander Eule, Staff Features Writer, BARRON’S:
The investment bankers couldn’t have scripted it any better: Less than three years after Kraft Foods Group was spun out of its parent company, the packaged-food giant got a massive takeout offer from H.J. Heinz, its privately held peer. The deal, announced last month, values Kraft (ticker: KRFT) at roughly $50 billion, double its value at the time of the October 2012 spinoff. ANOTHER FACTOR DRIVING SPINOFF performance is its appeal to larger firms. Analysts at Edge Consulting, which focuses on special situations, report that roughly 20% of spinoffs get acquired, usually around the two-year mark, when the Internal Revenue Service is less likely to apply tax penalties to the deal. The Edge study, done in conjunction with Deloitte, studied 800 spinoffs from the last 15 years.
Edge identified five fairly recent spinoffs it sees as ripe for takeover. They are: ADT (ADT), the home-security business and former Tyco unit; Lands’ End (LE), the apparel retailer spawned from Sears Holdings (SHLD); cereal maker Post Holdings (POST); magazine icon Time Inc. (TIME); and Alent (ALNT.UK), a British specialty-chemicals firm.
The stocks aren’t necessarily cheap, but Edge notes clear suitors and rationales for the deals. ADT, Edge CEO Jim Osman says, could jump-start the new home-security efforts by cable companies looking for fresh revenue streams. Lands’ End has a strong e-commerce business, which could appeal to brick-and-mortar retailers looking to expand their online presence. Time Inc. isn’t operating from a position of strength, but the newly independent magazine publisher could find a partner that sees cost-cutting synergies in the deal. He cites publishers Meredith (MDP) and Gannett (GCI). The latter is about to spin out its newspaper publishing business from the company’s more profitable TV stations.
Alent’s specialty-chemical business, meanwhile, could be attractive to a larger chemical company looking to ramp up growth. Alent makes the solder used to attach semiconductors to plastic boards as well as protective coatings for car parts. The company’s largest shareholder, a European activist firm that had pushed for the spinoff, could insist on additional change. Post could help another packaged-goods company gain scale. Post has long been a favorite of this magazine, which has endorsed the company’s acquisition strategy and its diversification away from cereal, toward growing areas like protein bars and convenience foods.
Each of the deals could come with premiums of at least 20%, Osman argues. He says his institutional clients, mainly hedge funds, have embraced the findings…