By Gordon Wilcox
Perhaps corporate spinoffs are the new black. In the first half of this year, 145 spinoffs were announced and the number had risen to over 160 through early August, according to data from Bloomberg.
Spinoffs are being seen across a broad swath of industries as companies try to unlock value for shareholders from business units that may not be fully appreciated by Wall Street. Marathon Oil (NYSE:MRO) spun-off its refining business earlier this year with the result being Marathon Petroleum (NYSE:MPC). ConocoPhillips (NYSE:COP), the third-largest U.S. oil company, will make a similar move early next year.
Those are just two examples from one sector. Dow component Kraft (KFT), the world's second-largest food company, will spin off its grocery unit. AMR (AMR) is spinning off American Eagle. Industrial conglomerates ITT (NYSE:ITT) and Tyco (NYSE:TYC) have spinoffs planned as well and that's just to name a few more.
With an eye toward 2012, let's have a look at five companies that are prime contenders for spinoffs of their own. In no particular order ...
BP (NYSE:BP): Europe's second-largest oil company said last year it would look to raise $30 billion through asset sales, but the company recently boosted that number to $45 billion. BP is roughly half of the way there, but an easy way to get close to being all the way home would be through following the lead of Marathon and ConocoPhillips and sell the downstream business.
Some analysts have previously advised BP spin off its refining and marketing business because it would bolster the company's balance sheet and could help increase the dividend. Not to mention BP is currently looking to sell some U.S. refineries and with the company's checkered history in the refining business (Texas City 2005), it makes sense for BP to get out of the downstream game.
Procter & Gamble (NYSE:PG): The Dow component and world's largest consumer products company has a long history of divestments and spinoffs, but the company could easily do a couple of more. A spinoff of the Duracell battery brand has been speculated on in the past and there has been some scuttlebutt P&G could consider a spinoff of its medical devices unit. Put it this way: P&G has sold plenty of well-known consumer brands and exited the food business altogether, so this company isn't shy about parting with assets it views as non-essential.
Pfizer (NYSE:PFE): The Dow component and world's largest drug company previously announced it's mulling spinoffs for its animal health and baby formula businesses and that could mean $24 billion for shareholders in the form of dividends and share repurchases according to Forbes. Still, investors might clamor for Pfizer to part with its generic drugs and consumer health units as well, the Forbes piece also noted.
Alcoa (NYSE:AA): The Dow component and largest U.S. aluminum maker could opt for a Marathon / ConocoPhillips-esque spinoff. Alcoa is an integrated aluminum maker and unlocking its equivalent of a downstream business could create value for investors in the words of one analyst quoted by Bloomberg. If that doesn't happen, Alcoa's best bet for creating shareholder value may be another company buying the company. Rio Tinto (NYSE:RIO) has been mentioned in the past as a possible suitor.
PepsiCo (NYSE:PEP): There has been talk of PepsiCo splitting its Frito Lay snack business apart from the beverage business, but no final decisions have been made on that front as of yet. On the surface, the move would appear to make sense given Frito Lay's dominant position in the snack aisle. Speaking of PepsiCo spinoffs, Yum Brands (NYSE:YUM) has been rumored to be mulling a spinoff of Taco Bell.
Other names in the spinoff conversation: Hewlett-Packard (NYSE:HPQ) has said it won't spinoff its PC business, but the company changed its mind once about that. Some analysts have said Exxon Mobil (NYSE:XOM) and Chevron (NYSE:CVX) should also spinoff their downstream operations, but both companies appear committed to the integrated model, at least for the moment.
Bull case: Obviously, all of the aforementioned companies would move forward with these spinoffs, creating value for shareholders and bolstering their balance sheets in the process. BP doing so would probably help investors warm to the embattled stock, though PepsiCo might be the most legitimate candidate on our list.
Bear case: Spinoff mania dulls in 2012 and companies opt for the status quo, potentially frustrating investors along the way.