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.

Intellectual Property
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.)

Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!

Related Articles
  1. Investing

    Time to Bring Active Back into a Portfolio?

    While stocks have rallied since the economic recovery in 2009, many active portfolio managers have struggled to deliver investor returns in excess.
  2. Economics

    Investing Opportunities as Central Banks Diverge

    After the Paris attacks investors are focusing on central bank policy and its potential for divergence: tightened by the Fed while the ECB pursues easing.
  3. Stock Analysis

    The Biggest Risks of Investing in Pfizer Stock

    Learn the biggest potential risks that may affect the price of Pfizer's stock, complete with a fundamental analysis and review of other external factors.
  4. Stock Analysis

    Allstate: How Being Boring Earns it Billions (ALL)

    A summary of what Allstate Insurance sells and whom it sells it to including recent mergers and acquisitions that have helped boost its bottom line.
  5. Chart Advisor

    Copper Continues Its Descent

    Copper prices have been under pressure lately and based on these charts it doesn't seem that it will reverse any time soon.
  6. Options & Futures

    Cyclical Versus Non-Cyclical Stocks

    Investing during an economic downturn simply means changing your focus. Discover the benefits of defensive stocks.
  7. Markets

    PEG Ratio Nails Down Value Stocks

    Learn how this simple calculation can help you determine a stock's earnings potential.
  8. Stock Analysis

    What Exactly Does Warren Buffett Own?

    Learn about large changes to Berkshire Hathaway's portfolio. See why Warren Buffett has invested in a commodity company even though he does not usually do so.
  9. Investing Basics

    How to Deduct Your Stock Losses

    Held onto a stock for too long? Selling at a loss is never ideal, but it is possible to minimize the damage. Here's how.
  10. Investing

    What’s the Difference Between Duration & Maturity?

    We look at the meaning of two terms that often get confused, duration and maturity, to set the record straight.
  1. Which mutual funds made money in 2008?

    Out of the 2,800 mutual funds that Morningstar, Inc., the leading provider of independent investment research in North America, ... Read Full Answer >>
  2. Do hedge funds invest in commodities?

    There are several hedge funds that invest in commodities. Many hedge funds have broad macroeconomic strategies and invest ... Read Full Answer >>
  3. What does low working capital say about a company's financial prospects?

    When a company has low working capital, it can mean one of two things. In most cases, low working capital means the business ... Read Full Answer >>
  4. Do nonprofit organizations have working capital?

    Nonprofit organizations continuously face debate over how much money they bring in that is kept in reserve. These financial ... Read Full Answer >>
  5. Can a company's working capital turnover ratio be negative?

    A company's working capital turnover ratio can be negative when a company's current liabilities exceed its current assets. ... Read Full Answer >>
  6. Does working capital measure liquidity?

    Working capital is a commonly used metric, not only for a company’s liquidity but also for its operational efficiency and ... Read Full Answer >>

You May Also Like

Trading Center