Is This Situation Special Enough?

In his book You Can Be a Stock Market Genius, author and investor Joel Greenblatt highlighted the opportunity hidden in mergers and acquisitions, spinoffs, and restructurings. Some deals are so complex that the true value of a stock won't be unlocked until well after the fact, giving savvy investors a chance to get in early and grab hold of shares at a discount. Huge profits are possible, and he achieved 50% annualized returns for a decade investing in them.

We'll look at some announcements presenting an opportunity for profit and pair that with the views of the 180,000 members of Motley Fool CAPS to see what they think of the businesses involved. If the best and brightest in the investment community like these stocks, it may be worth your time to dive in further.

But not every deal is worth your money. It takes diving into the filings to understand the nuances, so don't use the stocks below as a buy list -- more due diligence is needed on your part.

Company

CAPS Rating (out of 5)

Type of Situation

Terms

Abbott Labs (NYSE: ABT  ) ***** Spinoff Tax-free distribution of pharmaceutical business.
NovaGold Resources (NYSE: NG  ) **** Spinoff Distribute NovaCopper division to shareholders.

Source: SEC filings.

Again, this is just a starting point for further research. Do your homework before committing real money to these special situations.

Isn't that special?
Even though it was announced last October, there's still plenty of time for investors to delve into the Abbott Labs spinoff of its pharmaceutical business. The company expects the spinoff to happen either this month or next, leaving a medical device company focusing on products like its heart stents.

The new company will house Abbott's most successful drug, the rheumatoid arthritis therapy Humira, which last quarter generated $2.18 billion, or more than 20% of the company's revenues. Also included would be Lupron, Synagis, and Kaletra, along with a pipeline exploring the currently hot hepatitis C market and kidney disease. And despite management's denial, analysts continue to believe the real reason for the spinoff is to attract a buyer for the pharma business from the likes of Merck (NYSE: MRK  ) , AstraZeneca, or Bayer -- as Merck especially could benefit from Abbott's drug pipeline.

As much as Humira has been key to Abbott's success, it will face generic competition soon (2016). The company has to battle to come up with new drugs to replace it, and shareholders don't believe management's heart is in the fight anymore. For that reason, would the new pharmaceutical business be a good investment? Would a medical device company that faces new, higher taxes from health-care reform, challenge the new laws?

CAPS member jdwelch62 finds the two businesses together are a special business and looks forward to what they can accomplish separately.

Great pharma giant and medical device company. Solid, safe yield. Looking forward to see what happens when they split their pharmaceuticals from medical devices, etc., into 2 separate companies.

Let us know in the comments section below or on the Abbott Labs CAPS page if the math makes sense to you, then add it to your watchlist to be notified of when the division occurs.

A triple play?
Gold miner NovaGold Resources is also winnowing its focus to concentrate on core operations, and in addition to the proposed spinoff of its Ambler copper operations, it's also looking to sell its 50% stake in the Galore Creek project that it owns with Teck Resources (NYSE: TCK  ) .

By focusing solely on its Donlin Creek treasure, it's possible Barrick Gold (NYSE: ABX  ) , which owns a 50% interest in it, might make a new bid to acquire NovaGold again. It tried unsuccessfully to do so a few years ago, but management spurned the overture.

Yet to finance its ambitious plans, NovaGold plans to raise $380 million by issuing up to 40.25 million shares at a price of $9.50 a share. It originally planned to raise $250 million but increased the size, which caused its shares to fall.

The low two-star CAPS rating members have assigned the stock suggests they think there are better places for your money. Add the stock to the Fool's free portfolio tracker to keep track of how it performs when the company mines the opportunities before it.

Checking the mercury
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Fool contributor Rich Duprey holds no position in any company mentioned. Click here to see his holdings and a short bio. The Motley Fool owns shares of Abbott Labs. Motley Fool newsletter services have recommended buying shares of Abbott Labs. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


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Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On February 07, 2012, at 1:44 PM, rdj1234 wrote:

    Hi Rich,

    regarding abbott, I've been following it and haven't seen any announcement as to the spin's date. Can you share the article that said the next month or two?

    Thank You

    Roger Johnson

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