Wall Street loves a good spinoff, and although this is probably due to the fees it generates, it can also be an opportunity for investors to buy into a business that may have been previously undervalued. You might think that the parts can't be greater than the whole, but value is frequently realized in buying spinoffs, and there are two recent ones that bear further research.

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Drilling Spinoff
In the energy sector, Pride International (NYSE:PDE) just completed its spin off of 20 of its mat-supported jack-up rigs into a company called Seahawk Drilling (Nasdaq:HAWK). Shareholders of Pride International received one share of the new company for every 15 shares that they owned. Seahawk Drilling will have 11.6 million shares outstanding, and at the opening day price of $25.42, this new driller will have a market capitalization of $294 million. Some parent companies keep part of the new company, as a way to maintain control, but Pride International decided not to go this route and will have no ownership in Seahawk Drilling.

The reason for the spinoff was a simple one. Pride International is keeping its more valuable jack-up rigs and drill ships that can work in the deep water area, and wants to focus exclusively on that segment. Of course, this is not exactly encouraging to the new shareholders of the mat-supported jack-up segment, and there should be some weakness in the new stock as large institutional investors adjust portfolios.

Learning from the Past
(NYSE:RIG) did something similar back in 2004, when it sold part of its shallow water segment in an initial public offering (IPO). TODCO eventually became completely independent from Transocean, and was purchased by Hercules Offshore (Nasdaq:HERO). Investors in the new Seahawk Drilling might take comfort in knowing that despite the motley collection of assets that TODCO had, shareholders received a tidy premium in the Hercules Offshore purchase.

Healthcare Spinoff
Cardinal Health (NYSE:CAH) is spinning off of its former critical care and medical technologies and services segments. The new company called CareFusion Corporation will start trading on September 1, 2009, and will have the benefit of being included in the S&P 500 index.

Cardinal Health's rationale for the separation is based on the two sets of businesses having different product lines, distribution channels and serving different geographic areas. Cardinal Health will retain less than 20% ownership of CareFusion Corporation, and will liquidate the balance within two years.

Bottom Line
Spinoffs can create investment opportunities for those who are willing to do research into these types of deals, and the Pride International and Cardinal Health spin offs are worth a further look. (To learn more, see Parents And Spinoffs: When to Buy And When To Sell.)

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