Cashing In On Corporate Restructuring

The Homework

Information is easy to find when it comes to spinoffs. Every parent company is forced to file paperwork with the SEC outlining everything that an investor needs to know (and then some). The most important form to look for is Form 10, which outlines the spinoff distribution terms. This document contains a few key things to look for:

Basic Company, Share and Pricing Information

Look at the new company's market cap. If it's smaller, large funds are more likely to sell it. Also look at the share distribution terms to see whether it makes sense to buy the parent company shares or to buy on the open market after the company goes public.

Distribution Type

Oftentimes, spinoff shares are distributed to parent company stockholders; however, in some cases partial spinoffs, rights offerings or other formats are used. This can provide increased leverage , or other advantages.

Insider Distributions

Insider holdings and activity are key when determining the value of a spinoff. High insider ownership gives management incentive to perform well and drives shareholder value.

It is also a good idea to read press releases, related news coverage and other available media to determine how the public is going to react to the new spinoff. Press releases can be found under the company's ticker on Yahoo! Finance and company news can be found on Google News .

Overall, spinoffs outperform the market because of the inherent flaws in the spinoff process. Although not every spinoff opportunity represents an attractive investment, investors willing to dig a little deeper into SEC filings and press releases can find those that are with relative ease.

Mergers and Acquisitions (M&A)

Companies are notorious for failing at mergers and acquisitions - especially the mergers where two extremely large companies join forces. Add to that the fact that the M&A field is heavily dominated by arbitrage funds and other big players, and you may wonder how any small investor can make a profit. In fact, M&As can provide good opportunities for investors - it's just a matter of knowing how to find them.

The Process