07.14.15
Some Wall Street types are never satisfied. For years, analysts have called Procter & Gamble too unwieldy for proper management. After watching its stock price idle for years, P&G executives saw the light and started selling non-core brands, which culminated in the $12.5 billion sale of several beauty businesses to Coty last month. But now, at least one investment house insists Procter should have spun off, not sell off, its beauty biz.
According to Sanford C. Bernstein's Ali Dibadj, "a break-up of Procter & Gamble will result in two (or more) entities that can easily overcome the loss of scale benefits and be more nimble, more flexible, and less complex than even the soon-to-be slimmed down Procter & Gamble."
Dibadj arrived at this conclusion after analyzing 32 spin-offs greater than $1 billion in value in the consumer sector (both staples and discretionary) during the past decade. The Bernstein analyst noted that that, on average, there was modest relative outperformance over the medium-term (6-12 months) following the spin-off for both the SpinCo (+0-2% of alpha) and the ParentCo (+1-2%).
However, narrowing down the list of spinoffs to the 13 that Bernstein considers “break-ups” based on a threshold of 25% or more of sales being spun, the researchers found substantially more outperformance for the SpinCo (+6-7%) and the ParentCo (+3-5%).
"While every situation is different, we believe this analysis supports our view that a more significant break-up of Procter & Gamble will result in two (or more) entities that can easily overcome the loss of scale “benefits” and be more nimble, more flexible, and less complex than even the soon-to-be slimmed down Procter & Gamble," said Dibadj.
Now, somebody just needs to explain to this and other Wall Streeters that mid-term usually means some time beyond 6-12 months!
According to Sanford C. Bernstein's Ali Dibadj, "a break-up of Procter & Gamble will result in two (or more) entities that can easily overcome the loss of scale benefits and be more nimble, more flexible, and less complex than even the soon-to-be slimmed down Procter & Gamble."
Dibadj arrived at this conclusion after analyzing 32 spin-offs greater than $1 billion in value in the consumer sector (both staples and discretionary) during the past decade. The Bernstein analyst noted that that, on average, there was modest relative outperformance over the medium-term (6-12 months) following the spin-off for both the SpinCo (+0-2% of alpha) and the ParentCo (+1-2%).
However, narrowing down the list of spinoffs to the 13 that Bernstein considers “break-ups” based on a threshold of 25% or more of sales being spun, the researchers found substantially more outperformance for the SpinCo (+6-7%) and the ParentCo (+3-5%).
"While every situation is different, we believe this analysis supports our view that a more significant break-up of Procter & Gamble will result in two (or more) entities that can easily overcome the loss of scale “benefits” and be more nimble, more flexible, and less complex than even the soon-to-be slimmed down Procter & Gamble," said Dibadj.
Now, somebody just needs to explain to this and other Wall Streeters that mid-term usually means some time beyond 6-12 months!