Spin-offs: How do companies perform after they sell some of their assets?
Occasionally, companies will sell some of their assets on to other companies or spin off their assets into new companies.
In the last 12 months, Stockhead has found 10 instances of this and for the majority of these companies it is has been positive for shareholders. On average they are up 14 per cent since the announcement of their spin-off.
Four of them sold them to another listed company, whether on the ASX or overseas. Five sold their interests to private companies.
The remaining company, European focused miner Apollo Consolidated (ASX: AON), spun out its Western Australian gold and base metal assets into a new company – Constellation Resources (ASX: CR1).
Constellation Resources listed last July and is currently at 23 cents – a 15 per cent premium to its IPO price.
Po Valley Energy (ASX: PVE) already had a private entity with some of its Italian gas assets at Saffron Energy. But last May, it renamed that company Coro Energy, then after acquiring another Italian explorer (Sound Energy Italy) raised £14 million and listed the entity in its own right.
But rather than on the ASX, they opted to list on the London Exchange. Po Valley now only has three projects.
You would notice most of the companies are mining companies. But there were a few exemptions.
The most notable was engineering group Zicom (ASX: ZGL) which spun off its med tech business (ZIG Ventures) into its own company based in Singapore. Having been founded in 1978, the company set up its side venture in 2014.
This move came after several months of financial hardship and the company sought to return it to profitability. Its most half-yearly showed it was profitable – with S$3.4 million left in the bank after expenses were paid. After its share price fell as low as 5.5 cents in December, it now sits at 10.5 cents.
Judging by these companies, the most common reason for spin-offs are that they will allow the company to focus on assets they think are highest yielding. Having fewer assets means they can dedicate more work to them as well as money – through selling the assets
Po Valley Energy told its shareholders a few months after the spin-off, “The restructuring has substantially streamlined the business and allowed the skilled technical team to focus on these three large high impact gas and oil assets. The focus and progress is yielding significant results.”
Most recently the company set a maiden Prospective Resource at two of its fields, Torre del Moro and Bagnolo SW, of 106 million and 54.5 million barrels.
In a similar fashion, Tawana Resources (ASX: TAW) spun off all but one of its assets into a new company called Cowan Lithium, last July. Tawana’s management noted to shareholders it had only explored 5 per cent of its flagship Bald Hill lithium project and wanted to ramp up exploration – meaning other projects would be neglected.
Only a few months later, Tawana was acquired by Alliance Mineral Assets (ASX: A40). This came after 21,975 wet metric tonnes of lithium concentrate had been produced in July and August last year. Alliance was intrigued and told its and Tawana’s shareholders a merged entity would “unlock the full value of Bald Hill”.
And yesterday, Alliance itself saw another explorer tip money into it – Galaxy Resources (ASX: GXY).
Although it was not a formal acquisition, Galaxy made up around two-thirds of its $32.5 million capital raise and came after Galaxy had reportedly been interested for months.