16. September 2020 | 10:05 CET
Blackrock Gold, Continental, Siemens: Spin-Off as driver of share price
In the case of growing and large companies, the decision may be made in the course of development that part of the operational business be formed into a separate entity. A so-called spin-off or spin-out can have various advantages. On the one hand, capital-intensive businesses can separately tap the capital market independently in the form of a stock exchange listing and, in addition, the original company can also use the opportunity to sell shares. On the capital market, spin-off rumors and announcements can generate great interest among investors.
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ISIN: DE0005439004 , DE0007236101 , CA09258M1014
Mobility is facing major challenges
Continental AG is the second largest German automotive supplier after Bosch. In connection with the changes in the automotive industry, in October 2019, the corporation bundled its drive systems division into an independent company called Vitesco Technologies GmbH. Previously, the powertrain division at Continental was known as “Powertrain”. Although the politically motivated introduction of electric mobility is supported by taxpayers' money on the buyer's side, there is currently still a lack of interest in electric vehicles among the general public.
According to a study conducted by the Kiel Institute for the World Economy in June 2020, no electric car in Germany can currently compete with modern diesel engines due to the energy mix. The CO2 emissions of a diesel engine are around 173g CO2 per km and those of an electric car are 300g CO2 per km. The reason for this is obvious, because as long as electricity in Germany does not come from CO2 neutral sources such as sun, wind, water and nuclear energy around the clock, every additional load on the power grid means the additional burning of gas or coal - in other words, more CO2 for the atmosphere.
Although Vitesco Technologies covers all types of drives, the balancing act between the wishes of politicians and the needs of customers is currently causing a lot of uncertainty and also scaring off investors. It seems like a classic dilemma and it may not be possible to go public. A sale would then be an alternative. For the company's 40,000 employees, the current situation is probably anything but reassuring.
Energy system transformation harbours risks
The Siemens Group is experienced in the area of spin-offs, as the examples of Osram and Infineon show. Now the company is planning to take its subsidiary Siemens Energy public, and gradually withdraw from a problematic sector. Similar to mobility, decisions on energy supply are being made at the political level in connection with climate change, which poses major challenges for companies. For this reason, it is more attractive for Siemens to concentrate on other Groups and to distribute responsibility for energy technologies via the capital market.
With more than 90,000 employees, Siemens Energy AG is not a small company and for this reason the management is challenged with the responsibility that comes with the new independence. On September 28, 2020, the corks will pop on the trading floor. It remains exciting to see how investors will assess the value of the share. 45% of Siemens Energy shares are to be transferred to Siemens shareholders. Loyalty will then be put to the test.
Value creation through spin-off
Yesterday, the Canadian exploration company Blackrock Gold announced that it is considering a spin-off of a project in order to focus more on its flagship projects. The company is exploring its sites in Nevada and has recently made several discoveries. The capital market has recognized the development with a rising share price and in this context the company is now aiming to focus its future activities on these potential discoveries.
Andrew Pollard, CEO of Blackrock Gold, commented: "With gold hovering near all-time highs and our Tonopah West property dominating the show, we see this as the perfect backdrop to unlock value for investors by spinning out what was once our flagship property, Silver Cloud, into a separate, discovery-oriented public company. We don't believe the market is fully valuing the sum of our parts and we see this as the ideal solution to ensure both projects get the attention and command the valuation of which they deserve, with purpose-built teams for each. (…)“
The notification further states that upon review, Blackrock shareholders may receive one share of the 'spin-off company' for every three common shares of Blackrock. This move will provide shareholders with the opportunity to participate in and, if successful, benefit from the formation of a new exploration company focused on Northern Nevada.