Michael Lewis recently offered his opinion, suggesting that DirectTV (DTV) spin off its Latin American operations from its slower growth US business. The idea is that the Latin American markets are showing higher subscriber growth, the pay-TV market is less penetrated there (suggesting continued growth) and the threat of losing business to streaming sites like Netflix (NFLX) is low. Mr. Lewis also suggests that if broken up, the respective management teams would be better able to focus on their respective regional issues. The company’s Latin American segment represented about ~18% of 2011 sales, but has slightly higher operating margins and is certainly growing more quickly.
While there are some classic spin themes mentioned(e.g. high growth vs. low growth segments), it isn’t clear that the company would truly benefit from such a move or that it is being undervalued on a sum of the parts basis. The companies essentially do the same thing in different geographies so it is possible there are numerous benefits from being a part of a larger organization with a strong, steady foothold in the US. Additionally, not every small division has a hard time getting management’s time and focus. In fact, in many cases, higher growth, bright spots often command attention as execs like to be attached to those parts of the organization.
As Mr. Lewis points out, a spin wouldn’t be so out of character considering DTV’s affiliation with Liberty. Who knows what will happen here? It certainly would be intriguing, but he doesn’t think it is so likely and I would agree. I would never invest in a company purely due to a speculated spin though, but if the fundamentals and everything else looked good…it’s a nice potential catalyst to have.
Disclosure: Author holds no position in any stock mentioned.
Related articles
- Investors Would Win Big From This Satellite Spinoff (dailyfinance.com)
- Siemens Cancels IPO, Will Spinoff Lighting Unit To Shareholders (stockspinoffs.com)
