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For Greenblatt fans here is a classic spinoff coming up

I will try to post follow-ups to see in we can do a Greenblatt spinoff analysis on the separation. Is anyone interested?

A brief extract from Greenblatt explains why spinoffs are attractive...

"There are plenty of reasons why a company might chose to unload or otherwise separate itself from the fortunes of the business to be spun off. There is only one reason to pay attention when they do : you can make a pile of money investing in spinoffs. The facts are overwhelming:. Stocks of spinoff companies, and even shares of the parent companies that do the spinoffs, significantly and consistently outperform the market averages."

"The spinoff process is a fundamentally inefficent method of distributing stock to the wrong people. Generally, the new spinoff stock isn't sold, it's given to the shareholders who, for the most part, were investing in the parent company's business. Therefore once the spinoff's shares are distributed to the parent company's shareholders, they are typically sold immediately without regard to price or fundamental value"

It is interesting to note two points with the Hanesbrand spinoff

(1) It has well-known brands that produce stable cashflows.
(2) It is been loaded with $2.6Bn of debt.

Greenblatt notes that highly leveraged businesses can produce spectacular earnings growth. Does anyone have any insights in how this may play out for Hanesbrand?

"The ratings reflect Hanesbrands' high leverage resulting from its all debt-financed dividend to Sara Lee, the commodity-like nature of some of its products, the highly competitive and promotional retail environment, and its relatively narrow business focus," S&P analyst Susan H. Ding said in a news release.

Does this indicate that Hanesbrand is the toxic waste? ( see GBs writeup of Marriot case study for the explanation of "toxic waste"). Who is going to want to own a commodity-like business loaded with junk status debt?
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