Quote:
Originally Posted by Rain Man
They often trade stock of the old company with stock in the new company, but I think this is the first time that they've just cashed me out.
Now that you mention it, I guess from that perspective I'd rather get the cash than get stock in some new company that I know nothing about. I just hate losing the old stock that has done well for me.
Sometimes companies will spin off a division into the new company, and by large I hate that. They assign some value to it and say, "Hey, you're getting $2,000 of stock in this new company!", and then more often than not it goes out onto the market and immediately declines to $600 or something. I swear that companies do that just to offload debt, and they dramatically overvalue the new company. It seems like a scam.
The only company that's done right by me on the spinoffs is GE. I have a little bit of GE and they've spun off WAB and GEHC, which have both done really well for me.
In an odd story, I used to have a company with the symbol ALC. They were bought by NVS, which I also happened to own in the same account. So ALC disappeared and I got some additional NVS stock. Several years later, NVS vomited it back up. They spun off ALC into a separate company so all of a sudden I had ALC stock again. I figure I got ripped off somehow, but it was so long between the buying and selling that I don't really know how I did on that loop.
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Most of the time when they do spinoffs its because they want to get a higher PE ratio. I know GE (before everything went to shit) would complain incessantly because they didn't want the PE ratio of an industrial company because their medical and financial arms would have had higher PE ratios. So they spin them off, retain most of the shares in a holding company or just held by the parent company and get higher PE ratio. It's like an expense free cash infusion.