Value In Spin-Offs?

Over the past 15-20 years, Sears stores have performed poorly. However, buy and hold investors in Sears over the past 20 years have done quite well. During this period, an investor in Sears would have earned an annual return of 10.3 percent, beating the S&P 500 which returned just under 9 percent. The reason is that Sears has divested numerous companies, including Dean Witter, Sears Canada, Allstate, and Discover Financial Services. Although in conflict with the Efficient Markets Hypothesis, numerous spin-offs have created value for investors over the years, although the reason behind the performance of spin-offs is not clear. While some argue that it allows the market to better value the separate companies, it is also possible that spin-offs allow management of the individual companies to better focus on the businesses.