American Standard Companies Inc. (NYSE:ASD) announced last week that its spin-off of
WABCO Holdings Inc.
(NYSE:WBC) is set to take place on July 31st. Under the terms of the
deal, shareholders are American Standard on record July 12th will
receive one share of WBC for every three shares of ASD that they own.
Investors and shareholders should watch this spin-off as it presents
several opportunities to profit that we will explore in this article.
WABCO
is a leading provider of technologically advanced breaking, stability,
suspension and transmission control systems that has been around since
1869. Their products include a range of control systems that improve
vehicle safety and reduce overall vehicle operating costs for the
world's leading truck, trailer and bus manufacturers as well as select
passenger car manufacturers. The company's strong competitive and
financial condition make it a great stock to own.
Investors may
find it worth noting that spin-offs in general tend to outperform the
overall market during their first couple of years as an independent
public company (just check out
this article
by the Journal of Investment Management). The reasoning behind this is
simply that many people who receive the shares do not want them so they
immediately turn around and sell - creating a discount.
The
company is also much more nimble, being independent from its parent,
and therefore may be able to increase its revenues and cut costs. It is
also worth nothing that insiders are often given a high stake in the
new spin-off, which provides them incentive to jump the stock price. We
already know that WABCO is an excellent candidate with management's
sizable stake in the company with a leading market position.
In
the end, investors should carefully watch this stock after its July
31st spin-off while existing shareholders should consider holding onto
their shares for awhile. Evidence has shown that spin-offs do tend to
outperform the market in certain instances - and WABCO appears to be a
poster child for these cases. This makes WBC a stock
worth watching over the next year!