This article is part of our Rising Star Portfolios Series.
The field of special situations can be a happy hunting ground. As Joel Greenblatt details in his book You Can Be a Stock Market Genius, special-situation investing led him to 50% annualized returns for a decade. That type of return transforms a $1 investment into more than $50 in just 10 years.
Such special situations are created by transactions that transform the business -- spinoffs, reorganizations, and recapitalizations, to name a few. But the value created by such transactions often isn't reflected in financial statements, and so agile investors can get a jump, and a good price, on these stocks before they appreciate to full value. Also, while these situations can be complicated, this transactional complexity often creates value.
|
Company
|
Spinoff / Breakup
|
Expected Transaction Date
|
| Marriott (NYSE: MAR ) |
Timeshare business |
End of 2011 |
| Newmont Mining (NYSE: NEM ) |
Pilot Gold |
April 2011 |
| Cargill |
Mosaic (NYSE: MOS ) |
Q2 2011 |
| Pfizer (NYSE: PFE ) |
Unknown |
Not yet determined |
| Fortune Brands (NYSE: FO ) |
Home & Security, Golf units |
Ongoing |
Marriott will spin off its timeshare business to shareholders, in the process creating the world's largest stand-alone timeshare company. The unit has around $1.5 billion in unsold assets and owns 71 properties comprising 33,000 rooms. Last year, the timeshare business generated just 10% of the parent's total revenue, and has lagged the performance of the company's hotel operations. Add Marriott to My Watchlist, and we will deliver all of our Foolish analysis on this stock to your inbox.
Newmont Mining plans to purchase Fronteer Gold (AMEX: FRG ) , then spin off a new company called Pilot Gold. The spinoff will hold a selection of Fronteer's exploration assets in Nevada, Turkey, and Peru. Following the transaction, Fronteer shareholders will own about 80% of Pilot, with Newmont holding the remainder. Shareholders still have to approve the deal in early April. Click here to add Newmont Mining to My Watchlist.
Cargill plans to spin out its 64% stake of fertilizer giant Mosaic to stakeholders over a period of years. Cargill will exchange 179 million Mosaic shares with its own shareholders for their Cargill stock. The remaining 107 million shares will be exchanged with bondholders. The deal will leave Mosaic without a majority shareholder, making it more attractive for a takeover. Some analysts have speculated that Australian giant BHP Billiton (NYSE: BHP ) would be a likely suitor. Click here to add Mosaic to My Watchlist.
While Pfizer hasn't announced a transaction yet, it's undergoing an extensive review of its operations to see whether it can unlock value through a spinoff. The company is evaluating all its non-core businesses, and it expects to have the review completed by year-end. Of special interest is the company's nutritionals business, which analysts suspect could follow the lead of the highly successful spinoff of Mead Johnson Nutrition from Bristol-Myers Squibb. Click here to add Pfizer to My Watchlist.
The breakup of Fortune Brands is proceeding apace. The company has been taking bids on its golf unit earlier this month, and the unit is expected to fetch $800 million to $1 billion. The maker of Titleist and Footjoy products recorded operating income of $80 million in 2010. Also of interest is the spirits unit that would remain if the golf and home products businesses are successfully spun off. The spirits unit is already being pursued by strategic buyers. Click here to add Fortune Brands to My Watchlist.
Interested in these spinoffs or have others to share? Join me on my discussion board and follow me on Twitter (@TMFRoyal).
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