Spinoffs aren't taking off with investors

Some companies are looking again to spinoffs as a way to unlock value for investors — but it's been a tough sell.

Hewlett-Packard Enterprise (HPE), the business services arm of the former technology giant, last week was the latest big company to say it's spinning off a piece of a business as a way to make itself more valuable. Medical device maker Varian Medical (VAR) also last week announced plans to spin off its imaging business to a stand-alone public company.

The number of companies making this move has dropped, with 13 companies in the Standard & Poor's 1500 index announcing spinoffs so far this year, well off the pace of 58 that took place in all of 2015, according to a USA TODAY analysis of data from S&P Global Market Intelligence. Earlier this year, Honeywell (HON), Hilton Worldwide (HLT) and Xerox (XRX) all announced spinoffs, says Spin-Off Research.

Shares of spun-off companies hit a rough patch the past year. The S&P Guggenheim Spin-Off exchange-traded fund, which tracks these stocks, is down 17% the past 12 months, much worse than the S&P 500's 0.6% decline.

But there's been a bit of a change of heart this year. Shares of HPE soared 11% to $18.05 following the news last week of its enterprise service spinoff and plans to merge that business with Computer Sciences Corp (CSC). "The strategic combination of HPE and CSC will proffer benefits to both IT giants, with the new company gaining from scale, technological proficiency, versatility, and skilled management," according to a report from Spin-Off Research to clients. Beyond just HPE, spinoff shares have been at least keeping up with the market so far this year as the S&P Guggenheim Spin-Off ETF is up 4%, roughly in line with the rest of the S&P 500.

Spinoffs have had a difficult time since the big boom of these maneuvers in 2014 and 2015, says Joe Cornell, publisher of Spin-Off Research. Back then, many energy companies jettisoned parts of their businesses as oil prices went into freefall — and many of those energy spinoffs have performed poorly.

But while the spinoff market has been difficult lately for investors, they are still a good long-term play for investors, Cornell says. Spinoff companies can focus resources on a specific niche and can tie the compensation of executives to their performance, not to that of a larger organization. Over the past 10 years, the Bloomberg Spin-Off index has returned 174%, compared with the 77.8% return of the S&P 500.

Spin out

The pace of spinoffs among Standard & Poor’s 1500 companies so far this year lags behind that of last year.

Year,  number of spinoffs

• 2016 YTD, 13
• 2015, 58
• 2014, 55
• 2013, 28
• 2012, 18

Source: S&P Global Market Intelligence, USA TODAY