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Corporate breakups and spinoffs are back on Wall Street — but are investors up for the ride?

Spinoffs among S&P 500 companies are running at their fastest pace since 2016.

Hyunsoo Rim

Bankers love to put companies together, pitching acquisitions all day long to corporate executives in the pursuit of scale, synergies, and seriously huge banking fees. But they also don’t mind doing the opposite. Indeed, Corporate America’s hottest new trend in dealmaking is breaking up.

Divide and conquer

So far this year, plenty of household names have opted to split themselves apart: industrial giant Honeywell is dividing into three, while Warner Bros. Discovery said in June it would separate its TV networks from streaming and studios. Keurig Dr Pepper plans to separate its soda and coffee businesses after completing its $18 billion acquisition of JDE Peet’s. And Kraft Heinz will spin off its grocery arm, shedding Kraft-branded staples like boxed mac and cheese and frozen meals.

What’s fueling this uncoupling, with some of them even undoing past megamergers? According to The Wall Street Journal, a big driver is activists pushing back against bloated empires. Their argument? Fast-growing divisions get dragged down by sluggish ones, and those much-hyped “synergies” from megamergers hardly show up.

Spin-offs rising
Sherwood News

Amid shareholders’ growing push for simplification, spinoffs have been growing in the US. As of early September, there have been 11 announced spinoffs from S&P 500 companies — the most since 2016.

But whether these corporate divorces actually pay off is another story. In the first 18 to 24 months following the split, companies spun off do tend to outperform the S&P 500 by ~10%, Trivariate Research found — but those early gains might not hold up over longer horizons.

Since its 2015 launch, the S&P US Spin-Off Index — which tracks S&P 500 companies worth over $1 billion spun off in the last four years — has lagged behind the main S&P 500 Index.

On the flip side, other research suggests the parent companies might fare better; a recent report from Ernst & Young and Goldman Sachs found that the share prices of parent companies tended to outperform their relevant indexes by 2.1% on the day of the announcement, and by “6% over the respective sector indexes for the period of two years post-close of transaction.” Cynically, though, the bankers pitching the corporate breakups usually don’t care much about what happens afterward — they make fees on the transaction either way.

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Netflix is down amid reports it’s leading the Warner Bros. bidding war as Paramount cries foul

Netflix’s charm offensive appears to be working.

Netflix is reportedly emerging as the leader in the bidding war for Warner Bros. Discovery after second-round bids this week, edging out entertainment juggernaut rivals Comcast and Paramount Skydance.

Investors don’t appear psyched by the streaming leader’s turn of fortune: the stock is down on Thursday morning, a day after closing down nearly 5% following reports that scooping up HBO Max wouldn’t necessarily result in a big market share boost.

Paramount, which has reportedly made five bids for Warner Bros. Discovery, doesn’t love the current state of play, either. The company sent WBD a letter questioning the “fairness and adequacy” of the process, highlighting reports that WBD’s board favors Netflix and is resisting Paramount.

Any offer would be subject to regulatory approval — a fact that may have weighed against Netflix’s offer given that cofounder Reed Hastings’ politics are vocally to the left, very much at odds with the current regulatory regime. Paramount seems confident in its ability to get approval, reportedly boosting its breakup fee to $5 billion should its potential acquisition fall apart in the regulatory process.

Investors don’t appear psyched by the streaming leader’s turn of fortune: the stock is down on Thursday morning, a day after closing down nearly 5% following reports that scooping up HBO Max wouldn’t necessarily result in a big market share boost.

Paramount, which has reportedly made five bids for Warner Bros. Discovery, doesn’t love the current state of play, either. The company sent WBD a letter questioning the “fairness and adequacy” of the process, highlighting reports that WBD’s board favors Netflix and is resisting Paramount.

Any offer would be subject to regulatory approval — a fact that may have weighed against Netflix’s offer given that cofounder Reed Hastings’ politics are vocally to the left, very much at odds with the current regulatory regime. Paramount seems confident in its ability to get approval, reportedly boosting its breakup fee to $5 billion should its potential acquisition fall apart in the regulatory process.

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Delta says the government shutdown will cost it $200 million in Q4

The 43-day government shutdown that ended last month will result in a $200 million ding for Delta Air Lines, the airline said in a filing on Wednesday.

That’s about $100,000 per shutdown-related canceled flight. (Delta previously said it canceled more than 2,000 flights due to FAA flight reductions.) When the company reports its fourth-quarter earnings, the shutdown will lop off about $0.25 per share.

Delta initially stayed calm about the shutdown, with CEO Ed Bastian stating in early October that the company was running smoothly and hadn’t seen any impacts at all. One historically long shutdown later, Delta wasn’t able to remain untouched.

The skies have since cleared, though, and Delta’s filing states that booking growth has “returned to initial expectations following a temporary softening in November.”

Delta’s shares were up over 2% as of Wednesday’s market open.

Delta initially stayed calm about the shutdown, with CEO Ed Bastian stating in early October that the company was running smoothly and hadn’t seen any impacts at all. One historically long shutdown later, Delta wasn’t able to remain untouched.

The skies have since cleared, though, and Delta’s filing states that booking growth has “returned to initial expectations following a temporary softening in November.”

Delta’s shares were up over 2% as of Wednesday’s market open.

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