For three decades, I have watched investors chase the latest hot stock, the newest tech darling, and the most hyped IPO. Meanwhile, a sleepy corner of the market has been quietly minting fortunes.
I’m talking about corporate spin-offs, those unloved stepchildren distributed to shareholders who often sell them without a second thought.
They have beaten the market for 30 years with remarkable consistency.
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Research examining spin-offs from 1964 through 1990 found they delivered average excess returns of 3.0% on ex-dates. More impressively, studies showed spinoff companies significantly outperformed the overall market by 10%, and by 6% relative to their parent companies, in their first three years of independence.
When researchers updated this work, covering 2007 through 2017, analyzing 249 voluntary spin-offs, the pattern held. The abnormal returns remained at the same order of magnitude.
This is not a statistical fluke or a data-mining exercise. This is a persistent market inefficiency that has survived for decades.
The Greenblatt Framework
Joel Greenblatt, who achieved 40% annualized returns at Gotham Capital starting in 1985, built much of his fortune by exploiting special situations, such as spin-offs. His book “You Can Be a Stock Market Genius,” despite its terrible title, lays out the case with brutal clarity. Spin-off stocks outperform the market by an average of 10% annually. Why? Because spin-off stock is not sold, it is given to shareholders who typically sell immediately without regard to price or fundamental value.
Think about the mechanics. You own shares of Conglomerate X, which decides to spin off Division Y. One day, you wake up and discover you now own shares in two companies instead of one. But you never wanted shares in Division Y. You bought Conglomerate X for specific reasons. Division Y does not fit your portfolio, your investment thesis, or your risk profile. What do most investors do? They sell, often within days of receiving the shares.
This indiscriminate selling creates opportunity. Greenblatt found that most gains in spin-offs are realized in the second year of independence, driven by entrepreneurial changes and stock incentives. Management teams at the spin-off, now freed from corporate bureaucracy and armed with focused compensation packages, can finally execute.
The Hall Of Fame: Spectacular Winners
Let me walk you through some of the most successful spin-offs of the past 30 years. These are not cherry-picked examples. These are landmark transactions that demonstrate what happens when you unlock hidden value.
Yum Brands: A 1,600% Return
In October 1997, PepsiCo spun off its restaurant division as Tricon Global Restaurants, later renamed Yum Brands (NYSE:YUM). The company took KFC, Pizza Hut and Taco Bell, three iconic brands that had been buried inside a beverage conglomerate.
PepsiCo wanted to focus on its core business. The restaurant division, while profitable, operated on different economics and required different management expertise. The separation made strategic sense for both parties.
The results speak for themselves. Since the spin-off, Yum has delivered a total shareholder return of more than 1,600%. The S&P 500 over the same period? A 280% return. If you invested $10,000 into Yum in 1997, it would have been worth $170,000 20 years later.
This is the power of focus. Each business could now optimize for its own market without compromise.
Chipotle: From $22 to $1,592
McDonald’s bought Chipotle (NYSE:CMG) in 1998, hoping to diversify beyond burgers and fries. By 2006, McDonald’s realized the fast-casual Mexican chain did not fit its assembly-line model. The company spun out Chipotle to focus on its core business.
Chipotle stock was offered at its initial public offering of $22 per share. By July 2021, the stock traded at $1,592.25 per share. That is a gain of over 7,100%. Steve Ells, Chipotle’s founder and co-CEO, said in a 2013 interview that he never felt his company reached its full potential while part of McDonald’s.
Sometimes the best thing a parent can do is let the kid grow up and move out.
Abbott and AbbVie: The Gold Standard
If you want to see a textbook example of a mutually beneficial spinoff, study what Abbott Laboratories (NYSE:ABT) did in 2013. The company split itself into two publicly traded entities. Abbott retained its name and focused on diversified medical products and services. The new company, AbbVie (NYSE:ABBV), concentrated on biopharmaceutical drugs.
When AbbVie debuted on the NYSE on January 2, 2013, it traded at $26.33 per share. By February 2020, it closed at $93.29. Over seven years, the stock returned about 20.1% per year with a total return of about 168%. That beat the S&P 500, which returned about 14% over that same period.
But here’s what makes this special: Abbott also performed brilliantly. From 2013 to 2021, Abbott increased its dividend from $0.56 to $1.80. AbbVie raised its dividend from $1.60 to $5.20. If you invested $10,000 in each company at the beginning of 2013 for a total of $20,000, you would have held over $71,300 by 2021. Your Abbott position alone would have returned $40,493.34 with a compounded annual return of 15.83%.
Both companies won. Both shareholder bases won. This is what happens when you allow businesses with fundamentally different dynamics to operate independently with focused management teams.
Ferrari: The 10-Bagger
In 2016, Fiat Chrysler Automobiles spun off Ferrari. Before the separation, FCA had been struggling financially. Many suggested the spinoff was primarily focused on unlocking value. The decision allowed Ferrari (NYSE:RACE) to position itself purely as a luxury brand, leveraging its exclusive sports cars and Formula 1 heritage.
Ferrari’s stock has risen 10-fold since the separation, bringing its market capitalization to over $90 billion. That is more than double Stellantis’ market cap the company formed when FCA later merged with Groupe PSA.
Phillips 66: Doubling In Two Years
On April 30, 2012, ConocoPhillips investors received one share of Phillips 66 (NYSE:PSX) for every two Conoco shares owned. On its first day of trading, Phillips 66 closed with a market cap of about $20.5 billion. Within two years, the company more than doubled in size. Since its first day of trading, Phillips 66 has gained over 150%.
ConocoPhillips also performed well. Both companies benefited from the split. Upstream and downstream energy businesses operate on different cycles and require different capital allocation strategies. Separating them allowed each to optimize independently.
The Altria Empire: A Masterclass in Value Creation
The Altria (NYSE:MO) story deserves special attention because it demonstrates serial value creation through multiple spin-offs. A $1,000 investment in Philip Morris in 1957 would have been worth $5.8 million by 2007. Then the company executed a strategic series of spin-offs.
In 2007, Altria spun off Kraft Foods. In 2008, it spun off its international business as Philip Morris International. Philip Morris International has grown revenue per share by over 8% annually since its spin-off. In 2012, Kraft itself spun off Mondelez.
Each separation allowed focused management teams to pursue strategies appropriate for their markets without compromising other divisions. The international tobacco business could expand in emerging markets without the regulatory and litigation overhang of the domestic company. Food businesses could optimize their portfolios without the controversies surrounding tobacco.
The Market Today: Bigger And More Complex
The spin-off market has evolved. Before 2008, the average market value of a spin-off was around $1 billion. Today, that has grown to $2.5 billion. Spin-offs are also becoming more creative, including European companies cleaving off a division and listing it on a U.S. stock exchange.
Globally, 237 spin-off IPOs raised $53.9 billion in 2024, a 21.3% increase in size and a 17.4% drop in number. The deals are getting bigger but less frequent.
In the U.S., the trend is companies doing larger separations that are more impactful rather than portfolio pruning. Part of what drives the trend is CEOs’ greater confidence in business and macroeconomic conditions following years of volatility.
Activist investors routinely arrive at the doorstep of companies, saying the sum of the parts is more valuable than the combined entity. Elliott Management launched a campaign at Honeywell (NASDAQ:HON) in November 2024, demanding that the $140 billion conglomerate consider a breakup. A month later, CEO Vimal Kapur said Honeywell was eyeing the spinoff of its aerospace division, a unit analysts say could be valued at $90 billion to $120 billion on its own.
General Electric completed one of the largest corporate separations ever, splitting into three companies. GE HealthCare (NASDAQ:GEHC) was spun off in 2023. GE Vernova (NYSE:GEV), comprising GE’s energy businesses, was spun off in 2024. GE Aerospace (NYSE:GE) remains, focusing on jet engines and aviation technologies. Early results suggest value creation for all three entities.
FedEx (NYSE:FDX) announced plans to spin off its trucking business. Comcast (NASDAQ:CMCSA) is pursuing a bold move to spin off its cable networks.
Why Spinoffs Work: The Three Forces
Three forces drive spin-off outperformance.
First, forced selling creates opportunity. Shareholders receive stock they never wanted. Index funds must sell because the spin-off does not fit their mandate. Institutional investors cannot hold small-cap stocks. This indiscriminate selling depresses prices below intrinsic value.
Second, operational improvements drive value. Spinoff management teams can finally make decisions without navigating corporate bureaucracy. Capital allocation becomes focused. Compensation aligns with the specific business. Acquisitions and partnerships that were previously impossible become feasible.
Third, hidden value becomes visible. Complex conglomerates trade at a discount because investors cannot properly value the disparate businesses they comprise. Separation allows clear valuation. The sum of the parts exceeds the whole.
The Bottom Line
For 30 years, corporate spin-offs have delivered market-beating returns with remarkable consistency. This is not some anomaly or statistical artifact. This is a real, persistent market inefficiency driven by forced selling, operational improvements, and the unlocking of hidden value.
The best spin-offs free strong businesses from weaker parents, or allow two good companies to each thrive better independently. They create focused management teams with aligned incentives. They reveal value that was obscured by complexity.
The opportunity still exists today, though it requires more work than it did decades ago. Not every spin-off succeeds. Recent trends suggest more companies are using spin-offs defensively, dumping weak assets rather than unlocking value. Capital flows to passive funds have reduced the buying pressure that historically drove quick rebounds.
But for investors willing to do the work, to understand the strategic rationale, to analyze both the spin-off and the parent, to be patient through the initial selling pressure, spin-offs remain a fertile hunting ground for outsized returns.
When done right, everybody wins. The parent sharpens its focus. The spin-off gains independence. And shareholders who recognize the opportunity can profit handsomely.
That is the kind of edge I have spent 30 years looking for in markets. It does not require brilliant market timing or macroeconomic forecasting. It just requires paying attention to what other investors are ignoring, doing your homework, and being patient.
The spin-off playbook has worked for decades. It can work for you too.
Solstice Advanced Materials
Honeywell finally cut Solstice (NASDAQ:SOLS) loose on October 30th, sending its specialty materials business into the world as an independent company with something worth paying attention to: a business that sits right at the intersection of several powerful trends.
The core refrigerants operation generates about three-quarters of the revenue, and this is not your grandfather’s refrigerants business. Data centers are multiplying like rabbits thanks to artificial intelligence, and every one of them needs cooling systems that can handle the heat load from thousands of processors running around the clock.
At the same time, environmental regulations are pushing the industry away from older refrigerants toward low global warming potential alternatives, which happens to be exactly what Solstice produces under its Genetron and Solstice branded product lines.
The remaining quarter of the business supplies materials to semiconductor manufacturers, another market where the AI buildout is turbocharging demand.
You’ve got regulatory tailwinds supporting the refrigerants transition, structural growth in data center cooling, and a management team led by David Sewell, who spent three decades learning the specialty chemicals business at places like Sherwin-Williams and GE Plastics.
The multiple does not look demanding given the growth prospects, and sometimes the best opportunities show up when a high-quality business hits the market with a temporary blemish that scares away the momentum crowd.
Qnity Electronics
The DuPont electronics division, which everyone called ElectronicsCo, finally got a proper name and a stock ticker when it separated on November 1st as Qnity Electronics (NYSE:Q), immediately landing a spot in the S&P 500. This is a business that has been quietly supplying critical materials to the semiconductor industry for decades, and the timing of the separation could hardly be better. Artificial intelligence is driving a surge in demand for advanced chips, and Qnity provides materials across the entire manufacturing process, from chip fabrication to the circuit boards that connect everything.
You’ve got a company with strong margins, experienced management that knows the industry cold, robust free cash flow generation, and exposure to one of the few genuine secular growth stories in technology.
The valuation does not look crazy given the growth trajectory and margin profile, and spin-offs from quality parents like DuPont often create opportunities for patient investors willing to look past initial market volatility.
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