By JEFF REEVES
Big-name spinoffs have been the rage in 2011. Most recently, we have been hit by news that Hewlett-Packard Co. (HPQ)
And then there's the other smoking wreckage of a tech company, AOL Inc., which is supposedly meeting with a top M&A team to discuss how to sell the company for parts, according to reports last week.
But the Hewlett-Packard spinoff and the prospect of an AOL (AOL)
So who will be spinning off operations next? Here are four big-name companies that could benefit from divvying up their businesses and find a warm reception to the new companies on Wall Street.
Publishing giant McGraw-Hill Cos. (MHP)
Aside from the obvious hullabaloo over the S&P downgrade creating headwinds for the corporate parent, it makes good sense for McGraw-Hill to spin off its financial and business services from its other publishing operations.
Strangely enough, its information and media unit is what's dragging down the valuation of the company despite some backlash in the wake of the credit downgrade. So a split perhaps would be better now than ever before.
A spinoff of S&P and McGraw-Hill's related services business would not only liberate the better-performing assets of its financial arm but also allow new management to find value in a publishing unit that still has a lot of potential.
Consider Bloomberg BusinessWeek. The magazine, under McGraw-Hill, lost $60 million in 2009 but reportedly will raise its paid circulation to 980,000 this year and enjoy 15% more paid ad pages. It still is not profitable under Bloomberg's ownership, but president Paul Bascobert expects it to be soon.
This proves better management could meet the needs of the publishing businesses at McGraw-Hill if given the chance. Perhaps a dual approach to the businesses of McGraw-Hill could benefit both companies and result in bigger profits for each in the long run.
General Electric Co. (GE)
But don't think GE is only interested in hoarding assets and businesses. In 2009, it announced a deal to transfer a 51% controlling stake in the NBC Universal division to cable giant Comcast (CMCSA)
After all, it was the frozen credit market and exposure to loans that brutalized General Electric stock during the financial crisis and was the prime driver in an ugly 68% dividend cut in early 2009. Read why you should avoid the big banks for good on InvestorPlace.com.
It's worth noting that GE Capital wouldn't be put on an iceberg and pushed out to sea, either. With a book value of about $70 billion, the recent acquisition of the U.K. commercial-finance arm of the French bank Credit Agricole, and an overall improvement (relatively speaking) in its portfolio of loans, General Electric's finance business is pretty healthy.
After all, in its July earnings report, GE Capital reported that it turned $1.7 billion in profit during the quarter.
There are a host of kinky divisions at Google right now, including green-energy projects, renewable-energy investments, not to mention a steady drumbeat of acquisitions over the past several years that has made the tech giant every bit as much of a conglomerate as GE, including the 2005 purchase of broadband Internet access services from AOL.
What with the mammoth purchase of Motorola Mobility and its related tablet and smartphone operations, it seems Google is growing even more complex. That could mean the time is right for some spinoffs before the company gets too bogged down in disparate operations and a crazy org chart. Read how the 'haves' are thriving on Wall Street as the 'have nots' suffer on InvestorPlace.com.
That's why I think it would make sense to separate the core Google businesses like YouTube, Android smartphone software (and now Motorola hardware), as well as its flagship search and advertising services from the quirky brainchildren of its engineers. A so-called "Google Innovations" spinoff could lump together all the potentially game-changing technologies that Google is working on right now from its wind farm in Oklahoma to its cars driven by robots to biotechnology ventures that have included investments in firms like Adimab.
The problem, of course, would be that many of these operations aren't going to make big profits any time soon or in some cases any profits. But it would be interesting to put the legacy businesses in one basket and the explosive potential of Google in another if the numbers could get worked out.
Clearly Google's leadership at board and executive levels have bigger fish to fry and Google Innovations could benefit from a hard-charging and free-wheeling CEO that could lead the campaign into new territory while other folks worry about Chrome for mobile devices or how to increase ad sales 5% this quarter.
What's more, Google could directly motivate its employees on these projects with stock in the Google Innovations arm only. After all, if robot vehicles "take off" to generate $100 million in revenue next year, that cash will get lost in the shuffle of some $30 billion in annual revenue. It could pay for both Google and its workers to figure out a model like this.
In 2009, Advanced Micro Devices Inc. (AMD)
The result? Since January 2009, AMD stock has soared some 170% while its top competitor Intel Corp. (INTC)
What's more, so-called "fabless" semiconductor stocks that is, chip makers that don't technically make the chips but only license their use to other manufacturers are popular with many tech investors. Consider ARM Holdings (ARMH),
Would Intel benefit in kind by following AMD's lead and spinning off its foundry business? Perhaps. And some experts argue that even the fabrication arm itself could thrive under proper management. Semiconductor insiders claim the foundry industry will grow from $30 billion in 2009 to $50 billion in 2015 thanks to the gadget boom in recent years.
Intel could unlock value for both divisions if it spun off its manufacturing operation in the same way AMD did with GlobalFoundries.