I assumed the success of the subsidiary would be reflected in the share price of the parent company?

I own shares in a parent company that has a wholly owned subsidiary(a graphite mining company) that is going public in June. They say "shareholders will retain exposure to the graphite assets and will be offered shares as part of the Initial Public Offering (IPO)"

Is this just taking on unwanted risk looking to buy shares in a wholly ownded subsidiary or would the parent company not likely benefit much in share price appreciation on any future success?

  • 2
    It's hard to answer without more details on the specific terms of the spinoff, but there's evidence that spinoffs do tend to outperform. However, much of the opportunity tends to come from being able to buy the spinoff in the early months, when a lot of investors (especially institutional ones) sell it off. One of the best resources on spinoff investing is Joel Greenblatt's book, "You Can be a Stock Market Genius" (which has a terrible title but is an excellent book), and is nicely summarized in this blog post scuttlebuttinvestor.com/blog/2014/9/24/… Commented Apr 3, 2017 at 22:21
  • @Andrew Savikas It's an Interesting one, it's of my opinion that the parent company(Lithium Australia NL) is still technically a startup too, they are developing and new lower cost and "green" lithium extraction technique, not yet tested commercially. The spin-off (Blackearth minerals NL) is only in the exploration stages, it's a graphite mining company that i presume is meant to complement each other as i feel they want to get in on the battery technology market. Though from what i hear, they aren't giving Lithium Australia shareholders any spin-off stock, so no sell offs to take advantage of
    – Bezzzo
    Commented Apr 4, 2017 at 17:22

1 Answer 1


The parent company is likely to own other assets, which can be badly performing. Spinoffs are typically the better performers. There are also other factors, for example certain big funds cannot invest in sectors like tobacco or defense and for conglomerates it makes sense to spin those assets off to attract a wider investor audience.

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