Starbursts

On December 1, 1964, Hilton Hotels Corporation spun off its International division to shareholders. It was the first such transaction and marked the emergence of a new tool for corporate leaders, and their investment banker advisors, to shift the strategy and structure of their companies.

Over the years, spin-offs have been at the center of discussions of corporate strategy. They have figured in the decades long debate over the proper valuation of conglomerates; the ability of one management team to manage diverse enterprises; and and the urge among CEOs to re-define and re-position their businesses in response to shifting stock market tastes and trends.

In the wake of the financial crisis,  spin-offs once again are back in the news.  For example, a recent story in The Economist even introduces us to a new word to describe companies who are in a spin-off sate of mind: "starbursts." Like other celestial events, such as Halley's Comet, they do occur in cycles.

The writer ascribes the current surge in activity to the lack of private-market and private equity appetite for acquisitions:

"One of the main reasons for the starburst revival is that companies seeking buyers for parts of their business are not getting good offers from other firms, or from private equity. Foster’s, an Australian drinks group, is prepared to sell its wine business but, if no decent offer is forthcoming by May, will spin it off."

In the years since the Hilton International spin-off, these deals have created numerous opportunities for new owners to create considerable value, acquiring out-of-favor businesses and holding them long enough for the tide to turn in their direction.

To this point, On December 29,2005, Hilton Hotels re-acquired  Hilton International for $5.71billion, 41 years after the initial spin-off.