KEY THEMES
Earlier this month, we included M&A as one of the three key drivers we see for the market performance over the coming period. In hindsight, M&A does not necessarily have to be a combination of two entities; indeed, it can include spinoffs as well. We have recently been noticing a new trend in the market with listed companies spinning off into two or even three new entities. It all started with Amer Group [AMER] spinning off Porto Group [PORT], followed by Arab Cotton Ginning Co.’s [ACCG] spin off of Arab Co. for Asset Management & Development [ACAMD]. Today, the market is looking forward to at least three spinoffs, namely Pioneers Holding’s [PIOH] real estate and industrial businesses, Orascom Investment Holding’s [OIH] financial services business, and Arabia Investments Holding’s [AIH] non-banking financial services business. Yesterday, AIH was up 3.4% following the news which should come as a boon to AIH shareholders who have seen the growth performance of the company’s NBFS segment get overshadowed by a rather dull performance of the other two segments (construction & building materials and automotive). In retrospect, the below chart shows the stock performance of the two spinoffs that took place so far on the EGX: PORT and ACAMD. Since their spinoff, the former is down 41%, whereas the latter is the top performer by far, up 123%. In the three months following the spinoff, the stock performance of the new spinoff company ranged from marginally negative to positive. However, over the six and 12 months following the spinoff, the performance was mixed. On average, the stock performance of the spinoff companies has been better than that of the parent companies.F