Rochester is no newbie to the spin-off game. Many of us remember when Kodak spun off Eastman Chemical in 1994; a company which has since become a highly successful Fortune 500 firm. Even more, Kodak spun off Carestream Health and ITT Exelis, and both are now highly successful corporations, originally founded in Rochester, by Kodak. With these examples, spin-offs have meant more job opportunities, growth, and innovation for Rochester. However, from a business perspective, we're left to wonder, why do spin-offs happen and what do they mean?
Excelis, originally started from a division inside Kodak, announced last week that they will be spinning off a division called Vectrus. Excelis, known for their defense satellite imagery, decided that the spin-off would provide greater strategic focus from a management, customer service, and resource utilization perspective. The root of this spin-off, and many others, is that the businesses have different operating requirements and can often function better when they have dedicated resources. What this can potentially mean, for shareholders, is better profit margins and better returns.
However, there are spin-offs that may hurt the parent company years later. Many argue that Kodak's decision to spin-off Eastman Chemical may have helped lead them to the wrong focus, instead of embracing their true core competency, which were chemicals, not digital cameras.
As an investor, it is important to know about the companies you own and what their management vision is for the long term. Do not miss out on potential opportunities for growth and innovation!
Caroline Hill, Financial Advisor
(This article contains the current opinions of the author but not necessarily those of Brighton Securities Corp. The author's opinions are subject to change without notice. This blog post is for informational purposes only. Forecasts, estimates, and certain information contained herein should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. References to specific securities and their issuers are for illustrative purposes only and are not intended and should not be interpreted as recommendations to purchase or sell such securities).