Update: Making Money on Spinoffs
Thriving on Their Own
by David Stires, FORTUNE

(FORTUNE Magazine) - What We Said

In "How to Play the Spinoff Game" (March 7, 2005), we pointed out that newly liberated companies tend to thrive on their own. We recommended four firms that had recently been set free: Eagle Materials (Research), a maker of cement and other construction supplies; Wright Express (Research), an outsourcing firm that manages payment processing for corporate and government fleets of cars and trucks; GameStop (Research), a videogame retailer; and Neenah Paper (Research), a Georgia manufacturer of fine and technical paper.

What Happened

Our picks soared an average of 50%, led by Eagle Materials (EXP, $53), which jumped 89%, thanks to booming construction activity. GameStop (GME, $39) gained 86%, helped by a strong holiday season, and Wright Express (WXS, $25) was up 40% on greater sales. Our laggard was Neenah Paper (NP, $30), down 14%. Higher energy costs and the shutdown of a Canadian mill contributed to a $37 million loss in the fourth quarter of 2005.

The spinoff craze shows no sign of abating. Last year there were 27 breakups, with a total value of $54 billion, according to Spin-Off Advisors, a Chicago research and investment advisory firm. That's up from a recent low of 21 deals worth $14 billion in 2003. This year a number of big companies will split up or spin off divisions, including Tyco International (Research), Cendant (Research), and Wendy's (Research). And new studies continue to make the case for playing spinoffs. Lehman Brothers strategist Chip Dickson recently studied 88 spinoffs done between 2000 and 2005 and found that they beat the S&P 500 by a staggering 45 percentage points on average in their first two years as independent companies.

One stock that Spin-Off Advisors likes now is Acco Brands (Research) (ABD, $22), an office supply company that makes everything from bulletin boards to staplers. Spun off from Fortune Brands last August, Acco subsequently merged with General Binding Corp. to form one of the world's biggest office outfitters, with about $1.5 billion in sales. The bulk of Acco's sales come from products that are No. 1 or No. 2 in their categories. And the bottom line should get a near-term boost, thanks to the merger with GBC. Primarily by consolidating facilities, CEO David Campbell expects to generate $40 million in annual cost savings by 2008. Top of page