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Are Company Spinoffs Profitable Investments?

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When a company does a spinoff of one part of itself, both the parent and the spinoff both significantly outperform the market, on average, over the following three years. Indeed, the reason the spinoff occurred in the first place is usually that management thought it could unlock shareholder value by having the spinoff operate independently. They're not always right, but they're right about this more often than they're wrong. Also, some CEOs are empire builders, who don't do spinoffs even when they should, and this probably contributes slightly to the underperformance of conglomerates that don't do spinoffs relative to those that do.