Ten firms heading for a value-boosting demerger

Mergers and acquisitions often destroy value, but demergers usually add it. Could these 10 companies be next to benefit?

Charlie Gibson
By Charlie Gibson
published

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.

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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).

Charlie Gibson
Charlie Gibson

Charles has previously written for the MoneyWeek, giving readers his share tips regularly and covering other topics on the side such as stock markets and the economy. He has also written for The Business, Shares, Investors Chronicle and The Evening Standard, and Charles has presented on LBC and been a guest on BBC One and BBC World. Aside from his journalist background, Charles graduated as a chemist from the University of Oxford specialising in ligand gated ion channels.

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