The process is so clear yet it seems so one-off that it has the appearance of being haphazard. I am talking about deals like the one where Harris (HRS) is buying Exelis (XLS) today for a huge premium to where it was yesterday. I have had Exelis on several times since ITT (ITT) spun if off in 2011, because I love these laser-focused spinoffs from moribund conglomerates.
It's been led by retired Lieutenant General David Melcher and run ably, roughly doubling since it came public despite the difficulties of defense contractors in this era of sequestration. It's got some terrific communication gear for the army, but most people think of it as the purveyor of the really cool night vision glasses that have given our soldiers such an advantage over the bad guys.
Harris, itself often thought to be a breakup candidate, has been challenged to grow, too, particularly in its highly-valued communications business. Exelis solves that problem.
So here we go again: a spinoff of a conglomerate creates value with its independence, and then does so again when it sells itself.
Sound familiar? How about Hospira (HSP) when it was spun off by Abbott Labs (ABT) a few years ago and just got a huge bid this week from Pfizer (PFE)? How about Medtronic (MDT) buying Covidien, which as the medical spinoff of the unfocused Tyco (TYC)? How about CareFusion (CFN), the spin off from Cardinal Health (CAH) that recently got bought at a gigantic premium by Becton Dickinson (BDX)?
It's become the way of the world.
Which is why, even as it is still pretty-fresh faced, you should consider buying Halyard Health (HYH), the former health care business of Kimberly-Clark (KMB), another hospital supplier company that makes a variety of surgical pumps, masks and gowns and other products that hospitals routinely use.
Again, here's a company that was part of a gigantic consumer packaged goods entity ¿ or, more accurately, buried within. Now it can prosper and ultimately it will be too attractive to stand alone and, I believe, will make you even more money as it grows, acquires and then is ultimately acquired, not unlike the others above.
Spinoffs are orphans. For many years they were in vogue until there had become so much indexing that the stocks had endless selling once they came public. Now the logic of owning the pure play, though, is almost instantly attractive. Exelis was like that. So will Halyard Health.
- Yes, I am thrilled that Twitter (TWTR) has figured out a way to at last harness all of those who write for it for free and promote twitter under their names or embedded into their work. At last. Thank you, Dick Costolo. The heat? It is off.