The US is facing an energy crisis that has pushed gas prices to their highest levels in seven years and caused power outages in several states. President Joe Biden has been urged by some of the top CEOs in the country, including Jamie Dimon of JPMorgan Chase and David Solomon of Goldman Sachs, to take action to ease the supply crunch and avoid further damage to the economy.
But while the energy crisis poses a challenge for the Biden administration, it could also create an opportunity for some companies to unlock value through spinoffs. A spinoff is a type of divestiture that occurs when a parent company distributes shares in a subsidiary or business division to its shareholders, creating a new and separate company. Spinoffs can help companies focus on their core competencies, access capital, reap tax advantages, and increase shareholder value.
According to PwC, spinoff activity is on the rise again this year, as companies seek to regain focus and adapt to changing market conditions. Historically, spinoffs have outperformed the market and their parent companies in the long term, according to Quantamental Research Group.
One sector that could benefit from spinoffs amid the energy crisis is the oil and gas industry. As demand for fossil fuels surges and supply remains constrained, oil and gas companies could spin off their renewable energy or low-carbon businesses to capitalize on the growing interest in clean energy and environmental, social, and governance (ESG) investing. For example, BP recently announced plans to spin off its solar power joint venture Lightsource BP into a separate public company.
Another sector that could see more spinoffs is the utility industry. As power grids struggle to cope with extreme weather events and fluctuating demand, utility companies could spin off their non-core or underperforming assets to improve their operational efficiency and financial performance. For instance, Duke Energy is reportedly considering spinning off its Midwest commercial generation business, which sells power in deregulated markets.
Spinoffs are not without risks and challenges, however. They require careful planning, execution, and communication to ensure a smooth transition and avoid potential pitfalls. Some of the key factors that can affect the success of a spinoff include timing, valuation, governance, branding, and stakeholder engagement.
If you are interested in learning more about spinoffs and how they can help your company create value in times of crisis, contact us today for a free consultation.
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