Spinoffs

Barron’s published my Letter to the Editor:

The Case for Spinoffs

To the Editor:
Regarding “Big-Name Stock Spinoffs Are Going Mainstream. Here’s Why.” (The Economy, Oct. 18): In addition to the tax-free nature of these transactions to both the parent corporation and the recipient shareholders, this restructuring permits the spun-off company to make its own managerial decisions without having to go up a corporate ladder for time-delayed approvals. Further, these companies’ managers would probably have their interests closely aligned with shareholders through substantial stock ownership and stock options. Spinoffs, on average, have outperformed the market, including several associated with John Malone’s Liberty Media. One outstanding performer has been Chipotle Mexican Grill, which was spun off by McDonald’s in January 2006. Its compounded rate of return has been 28% a year, which has handily outperformed McDonald’s return of 15% a year over the past 17 years.

David I. Kass
College Park, Md.