Wednesday, October 26, 2011

Do You Understand The Conoco-Phillips Spin Off?

Guest blogger Tim McLeenan brings us answers to all of our questions on what the Conoco-Phillips [ticker COP] spin off will mean to investors.....

I was checking out the recent conference call that James Mulva, the CEO of Conoco-Phillips, conducted with analysts to discuss the company’s plans to split the company up in 2012, with one company focusing on Exploration & Production while the other one will focus on Refining & Marketing. While the list of disadvantages associated with any stock spinoff may be self-evident, the duplicate boards, management, and cost structures, the loss of diversification that gives a company the ability to rely on multiple business units during difficult times, and of course, reduced efficiencies, or whatever the correct term is to note the opposite of ‘synergy savings’ that companies always claim, will occur when two companies merge.

So investors need a reason to believe that a stock spinoff will actually provide something to investors that the combined company didn’t either capital appreciation in the form of P/E multiple expansion that a more focused company can achieve, higher growth, or an unexpected dividend boost that did not appear likely under the combined company.....Read the entire article.

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