There is nothing quite like the whiff of a spin-off to whet the appetite of investors. And in the case of Singapore Press Holdings (SGX: T39) the shares climbed more than 3%, even though we don’t yet know the “how”, “when”, and more importantly, whether the company could spin off its real estate assets.
What we do know is that the company is “exploring” the establishment of a Real Estate Investment Trust (REIT) that will hold a portfolio of its properties. Exactly which of its properties, which include the upmarket Paragon Shopping Centre, could be part of the spin-off portfolio is unclear. The company cautioned that the plan will be subject to market conditions, regulatory approval and approval by other parties.
Generally, spin-offs are about separating a healthy operation, and it is done for a variety of reasons. For the parent company, a spin-off helps to sharpen management focus by letting it concentrate on its core operation instead of a being distracted by a subsidiary.
For the spin-off company, its management is free to develop its own ideas. It can sometimes be an indication that the subsidiary it is ready to take on new challenges on its own, which could be a boon to its new shareholders. Moreover, because it no longer has to compete for the parent company’s attention, resources and capital it has a better chance of growing quickly.
Consequently, a spin-off can be beneficial both to the parent company and the newly formed business, which could explain why shares in the newspaper publisher shot up to a five-year high. Additionally, in most cases spin-offs can unlock hidden shareholder value too. This is especially true if the market values the two separate businesses higher than if the two businesses operate as a single unit.
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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore Director David Kuo doesn’t own shares in any companies mentioned.