RemSleep Holdings Inc (RMSL)

[Funaboard]

Why Spin-Offs Can Be Misvalued?

Regardless of the initial motivation behind a spin-off transaction, two studies showed newly spun-off companies tend to handily outperform the general market. One study, completed at Penn State, covering a twenty-five year period ending in 1988, found that stocks of spin-off companies outperformed their industry peers and the Standard & Poor's 500 by about 10 percent per year in their first three years of independence (Patrick J. Cusatis, James A. Miles, and J. Randall Woolridge, "Restructuring Through Spin-Offs," Journal of Financial Economics, June 1993). In their study, the parent companies also managed to do fairly well--outperforming the companies in their industry by more that 6 percent annually during the same three-year period. The second study completed by McKinsey found more than 300 spin-off’s occurred between 1988 and 1998. McKinsey’s results indicated that spin-offs substantially outperformed the market, showing a two-year total shareholder return of 27%, compared to the S&P 500 17% and Russell 2000 14%. McKinsey’s study also showed that Tracking Stocks returned 19% vs. 21% for the S&P 500. However, in fairness to Tracking Stocks, McKinsey’s study showed they kept pace with industry peers. (Patricia L. Anslinger, Steven J. Klepper and Somu Subramaniam, “Breaking up is good to do,” The McKinsey Quarterly, 1999, Number 1). These market-beating results were enjoyed by just owning them across the board. Why should this be? Why should it continue? The spin-off process itself is a fundamentally inefficient method of distributing stock to people who may not want it. Generally, the new spin-off is given to shareholders that, in most cases, were investing in the parent company's business. Once the spin-off's shares are distributed to the parent company's shareholders, they are often sold immediately without regard to price or fundamental value. The initial excess supply has a predictable effect on the new spin-off's stock price: it usually goes down. Therein lies the value. This type of selling can push spin-offs to price levels not reflective of the longer-term outlook for the business. Savvy investors can take advantage of temporary declines in prices by accumulating shares at attractive levels.

KATX and BVIG Just did a spinoff
http://www.spinoffadvisors.com/articles/spinoffs101.htm