Ten firms heading for a value-boosting demerger

By Author Charlie Gibson Mar 01, 2006

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A recent piece of academic research has proved what many have long suspected, says Shares: “that while mergers and takeovers mainly bring questionable benefits to the companies and their shareholders, demergers by and large add value”.

This is especially true when a large parent firm spins off a smaller unit; in later trading, shares in the spin-offs outperformed those of their peers by 17% and “substantially” outperformed the broader market.

UBS found that £12,000 invested equally in 12 stocks prior to their demerging “would have turned into £21,120 by 2005”, a return of 76%. Of course, this strategy isn’t fail-safe – Northern Foods and Uniq are both cases of companies where the results of a demerger have been “disappointing”. But there have been many successes (ICI/Zeneca, BT/O2, Kingfisher/Woolworth/Kesa, Bats/Argos, Granada/Compass and BG/Lattice, to name but six) where both new entities have benefited enormously from a new ability to focus on their core businesses.

So which companies may be candidates for demerger now? According to Shares, there are ten worth looking at: Aegis (AGS, 132p), Pearson (PSON, 717p), Anglo American (AAL, £21.30), BHP Billiton (BLT, 997p), BBA (BBA, 307p), Cable & Wireless (CW, 106p), CodaSciSys (CSY, 501p), GUS (GUS, £10.69), Rentokil (RTO, 158p) and Whitbread (WTB, £10.84).

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Published in Tips & advice | More articles by Charlie Gibson

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