Spinoffs are frequently promoted as a method of increasing shareholder value, under the theory that the market undervalues a company when it is composed of many disparate businesses. While this theory may not seem logical, it is frequently true.
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It's been a little more than a year since IAC Interactive (NYSE:IACI) completed its restructuring, where it orchestrated a quadruple spin off of many of its business segments.
As a quick review, IAC Interactive gave birth to Ticketmaster (Nasdaq:TKTM), HSN, Inc. (Nasdaq:HSNI), Interval Leisure Group (Nasdaq:IILG) and LendingTree (Nasdaq:TREE) in August 2008. Shareholders of the old IAC/Interactive prior to the spinoff received 0.20 shares each of HSN, the Interval Leisure Group, and Ticketmaster, and 0.033 shares of Tree.com.
First, let's look at performance. HSN, Inc. and Lending Tree are up since the spinoff, but only marginally. The worst performer is Ticketmaster, which is down 58%. Interval Leisure Group is down 17%.
|Company||Stock Price 8/12/2008||Stock Price 9/4/2009||Return|
|Lending Tree||$ 7.32||$ 7.47||2.0%|
|HSN, Inc.||$ 10.90||$ 11.03||1.2%|
|Ticketmaster||$ 23.71||$ 9.84||-58.5%|
|Interval Leisure Group||$ 13.20||$ 10.93||-17.2%|
Ticketmaster has been very busy the last year, and in February 2009, agreed to a merger with competitor Live Nation (NYSE:LYV). Unfortunately for shareholders, several politicians have raised concerns about antitrust issues in the deal. The company also just missed its second-quarter earnings estimates with ticketing volumes down by 11% and average revenue per ticket down by 7%.
Home Shopping, Hotels and Housing
HSN, Inc. went into a deep sell off and hit $1.40 per share at the end of last year before rebounding back to close at $11.03 on September 4, 2009. This company owns the Home Shopping Network, and its leverage to the consumer is a concern to investors.
Interval Leisure Group reported earnings per share of 15 cents in its most recent quarter reported in early August. The company saw revenue fall 4% and said the "decline in revenue reflects the impact of overall macroeconomic conditions that negatively affected the leisure travel industry." Interval Leisure Group saw a large impact in its Aston segment, which provides hotel and resort services in Hawaii. The company said that revenue per available room (RevPAR) fell by 24% in the quarter. (Climate-change deniers and believers alike would be wise to prepare for the worst Five Investment Risks Created By Global Warming.)
Lending Tree is also exposed to the consumer and the housing sector, and has seen a large decline in business. The company managed seven cents in profit in its most recent quarter.
The Bottom Line
It may not be fair to judge this spinoff after only a year, as the economy fell of the cliff just around the same time. It is possible that with a longer time frame, this spinoff could be a success. Also, many of its businesses were exposed to consumer spending, including travel, leisure and housing, which had been particularly hard hit by this recession. (Learn more in our Economic Indicators Tutorial.)
Spinoffs come and go on Wall Street, and promise investors a better return through ownership in more than one stock. Investors who stuck with IAC Interactive and its parts are still waiting for that return after one year.
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