Stock spinoffs

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Happy Holidays Guys!

I’m wondering what your experience is with stock spinoffs. I’ve recently read that Constellation and Brookfield Asset Management are planning spinoffs sometime in 2021. Constellation is spinning off Tropicus and BAM is spinning off BAM Reinsurance.

Are buying into the parent companies prior to the spin-offs in order to receive the special dividend (or new stock) worth it? What are the risks? Thanks!

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Asked on December 21, 2020 12:00 pm
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Hi there,

Much like anything, it has to do with the quality of the spinoff. Usually, if the spinoff is viewed as unlocking value, then it will benefit both the parent and the spinoff is likely to do well as well. If however, the spinoff is viewed as a better option, the parent may suffer a drop. Furthermore, not every spinoff results in the existing shareholders receiving a portion of the new company.

Usually, the markets react accordingly and there is no benefit to buying for the sake of receiving a special dividend. If you want to own the spinoff only, then simply wait and buy the spinoff when it goes public. Bottom line, you should only buy a company if you like the underlying fundamentals of said company.

In the case of Topicus, CSU announced that shareholders will receive 1.859817814 shares of Topicus for each share of CSU they own. The dividend will be paid to shareholders on record as of December 28, 2020.

In the case of BAM Reinsurance - it expects to be distributed at a rate of 33 cents per share of BAM in the first half of 2021. More details will be released closer to the deal.

Mat

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Posted by Mathieu Litalien
Answered on December 21, 2020 1:56 pm