The success of Chipotle Mexican Grill Inc., whose shares have surged 12-fold since it separated from parent McDonald’s Corp. in 2006, has investors chasing after U.S. spinoffs in search for the next hidden gem.
The CHART OF THE DAY shows the newly developed Bloomberg U.S. Spin-Off Index, which includes companies like Time Warner Cable Inc. and cigarette maker Lorillard Inc., has jumped 163 percent from Dec. 31, 2002, through yesterday. The Standard & Poor’s 500 Index has increased 45 percent over the same time.
Northrop Grumman Corp., the third-largest U.S. defense contractor, tomorrow will spin off its shipbuilding unit into a separate company to be called Huntington Ingalls Industries Inc. The unit makes nuclear-powered aircraft carriers, submarines and destroyers at yards in Louisiana, Mississippi and Virginia.
Other companies that have announced spinoffs since the start of the year include Liberty Media Corp., Marathon Oil Corp., Cablevision Systems Corp., Fortune Brands Inc., Motorola Corp. and ITT Corp. Pfizer Inc.’s shareholders are pushing the company to divest its nutrition business.
“That’s a brisk start for the year,” said Rob Gutman, an equity research analyst at New York-based Robotti & Co LLC., who focuses on spun-off businesses. “The unwinding of a conglomerate can unlock” the discount that investors typically apply to such companies, he said in a phone interview. “Pure plays may get a premium because they could become takeover targets.”
Denver-based Chipotle was spun off from Oakbrook, Illinois-based McDonald’s in January 2006, and its market capitalization tripled to $8 billion after the separation, William Mitchell, author of Spinoff & Reorg Profiles, a monthly newsletter published from Costa Mesa, California, said in an interview. Its value may not have been revealed “if it was still buried inside McDonald’s,” he said.