Investors that are interested in playing corporate spin offs or reorganizations might want to take a look at IDT Corporation (NYSE:IDT), which is planning to spin off two separate businesses to shareholders. These actions can sometimes unlock shareholder value as the market revalues the businesses separately.
IDT Corporation is primarily in the telecom services business, but also has interests in the energy services industry. The company also owns a significant number of patents related in the communications area.
TUTORIAL: Risk and Diversification
In November, 2010, IDT announced that the company would move to spin off its Genie Energy division, which is an energy services company that operates in the Northeastern United States. This segment also contains other business interests, including American Shale Oil Corporation, which is involved in a joint venture located in the Piceance basin of Colorado with Total (NYSE:TOT), to develop oil shale. This oil shale development is different than the shale resources that most other operators are pursuing, where the industry uses hydraulic fracturing to free hydrocarbons that are trapped deep underground in relatively impermeable rock.
This project will take solid rock that contains kerogen, and heat the rock to more than 600 degrees to release hydrocarbons which are then processed further. IDT Corporation and Total are in the early planning stages of this project, but if everything goes according to plan, the project will start up in 2019 with an eventual capacity of 100,000 barrels per day of production.
These types of projects were in vogue back when oil prices were soaring in the late-1970s and early-1980s, but when oil prices collapsed, most projects were canceled or shut down. The most famous of these was the Colony Shale Oil Project, also located in the Piceance Basin, which was owned by Exxon Mobil (NYSE:XOM) and Tosco Corporation, a company that is now part of Conoco Phillips (NYSE:COP). The project was shut down in 1982.
Another business that Genie Energy controls is Israel Energy Initiatives, which owns a majority interest in a similar oil shale venture in Israel. The company is embarking on a pilot program here, and expects commercial production to begin in 2018.
Another spin off announced by IDT Corporation is a company called Innovative Communications Technologies, which will contain intellectual properties owned by the company. These include patents and related licensing revenue related to voice over internet technology used in the communications industry. Shareholders of IDT Corporation will receive one share of this new company for every five shares owned of the parent company.
Liquidity and Ownership Issues
One area that investors should investigate further before jumping into IDT Corporation is the ownership structure. IDT Corporation will have only two classes of common stock outstanding, with the Class B common stock the most liquid, and trading under the IDT symbol. The company also has Class A common stock. IDT Corporation is in the middle of an exchange offer involving these classes that, when complete, will leave only the Class A and Class B common stock outstanding.
Howard S. Jonas, the CEO and Chairman of the board of directors of IDT Corporation, also owns a majority of the outstanding stock of the company and exerts considerable influence on its affairs.
The Bottom Line
Spin offs are in fashion again on Wall Street, as IDT Corporation, a diversified company active in several different businesses, including telecom services and energy, is planning two separate spin offs. Investors might find value in this break up. (Companies use M&As and spinoffs to boost profits - learn how you can do the same. See Cashing In On Corporate Restructuring.)
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