5 Spinoffs We’d Like to See Soon

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Investors have been rewarded with a handful of long-requested spinoffs this year, like eBay (EBAY) recently deciding to spinoff PayPal, and Monday’s announcement that Hewlett-Packard (HPQ) would be splitting into two companies. The market is looking forward to seeing how well each does when allowed to thrive under a management with a singular, focused goal.

spinoffs, hewlett packard

Yet, there are still a handful of other spinoffs investors would probably like to see happen.

Not that any of these organizations have necessarily  planned — or even discussed — a spinoff in the foreseeable future, but maybe they should. Their current corporate structures may have worked in the past, yet now they’re becoming unwieldy; some focus is needed.

In no particular order, here are five spinoffs we’d like to see, and why.

Cisco (CSCO)

spinoffs, cisco stockEven as it’s acquiring smaller, young companies, Cisco (CSCO) could be well-served were it to split at least into two distinct organizations.

While Cisco seemingly has its hand in all-things-tech, the organization’s product lines could be intelligently broken into two major categories: Growth arenas that focus on cloud-centric technologies, and value segments with roots in service and networking solutions.

Mark Sue, of RBC Capital Markets, suggested the former could continue grow organically as well as via acquisitions, while the other business could really come into its own as a cash cow.

Although it has yet to even publicly entertain the idea of a spinoff, one can’t help but wonder if the impending exit of CEO John Chambers would prompt such a maneuver.

Amazon (AMZN)

spinoffs, amazon stockBefore Amazon Web Services became such an integral part of the Amazon (AMZN) revenue pie, AMZN stock owners didn’t really care that it didn’t quite jive with its core e-commerce business. Now that AWS is estimated to be a multi-billion dollar enterprise, however, the possibility of breaking out this division via a spinoff has been floated more than a few times by AMZN stockholders and fans.

To be clear, Amazon has always been a bit adamant about not wanting to let go of its AWS division. The market’s getting a little restless, though, as it’s certain Amazon Web Services is more reliably profitable than its e-tailing arm.

It’s also worth noting that nobody really knows exactly how much revenue AWS is driving; the company doesn’t offer those details in its quarterly filings. Estimates of $5 billion per year, however, don’t seem out of line.

General Electric (GE)

spinoffs, general electric stockJust to give credit where it’s due, General Electric (GE) has been more than willing to execute spinoffs of distracting businesses before. In fact, it just completed one, shedding its consumer finance arm — Synchrony — earlier this year. There’s another spinoff that might be in the best interest of GE stock owners, however: getting rid of GE Healthcare.

It’s not that General Electric hasn’t done well in the healthcare hardware arena. Its competition is catching up, though — or perhaps GE is losing steam — and the focus GE needs to employ in the health arena just isn’t there any more.

But is General Electric really ready to let go of its healthcare arm? It says not, but the fact that Head of Business Development John Flannery is in the process of taking the helm of the lagging healthcare division could be an ideal segue into the spinoff discussion.

Merck (MRK)

spinoffs, merck stockMerck (MRK) is another name that hasn’t been afraid of spinoffs in the past. There’s another one it may want to consider now, however — its animal health unit.

Plenty of people have been clamoring for it. And, if the company needs inspiration for the idea, it only has to look at the upside Pfizer (PFE) created for PFE stock holders with its spinoff of Zoetis (ZTS). ZTS stock is up 19% since the spinoff was completed in February of last year.

A spinoff of its animal health division isn’t the only option that could unlock some more value fir current MRK stock owners, though. Chatter of a spinoff of its consumer health business has also gotten more than a little traction.

3M (MMM)

spinoffs, 3m stockAmazingly, despite selling thousands of different products in nine distinctly different industries, rarely does the idea of spinoffs come up for 3M (MMM). But maybe it should.

It’s difficult to believe a company that sells Post-its, stethoscopes, touch screens, security systems, hospital management solutions and more is able to do so as effectively as it could if each unit didn’t have to worry about what the others were doing, or share resources with those other product lines.

At the very least a spinoff (or spinoffs) would give MMM stock owners a clearer picture of what they own and how its different divisions were doing.

For what it’s worth, rumors surfaced earlier in the year that 3M was mulling a spinoff of its electronics wing. Little has been said of the idea in the meantime, but it’s the kind of idea that, once “out there,” never really goes away.

As of this writing, James Brumley did not hold a position in any of the aforementioned securities.


Article printed from InvestorPlace Media, https://investorplace.com/2014/10/spinoffs/.

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