How Biden’s Energy Crisis Could Help Spinoff Companies | Ash’s | Coins | January 2024
The United States is facing an energy crisis that has pushed gasoline prices to their highest level in seven years and caused power outages in several states. President Joe Biden has been urged by top U.S. CEOs, including JPMorgan Chase’s Jamie Dimon and Goldman Sachs’ David Solomon, to take action to ease supply shortages and avoid further damage to the economy.
But while the energy crisis poses a challenge for the Biden administration, it may also create opportunities for some companies to create value through spinoffs. A spinoff is a type of sale that occurs when a parent company distributes shares of a subsidiary or business unit to its shareholders, creating a new, separate company. Spinoffs can help companies focus on core competencies, access capital, enjoy tax advantages, and increase shareholder value.
Spin-off activity is on the rise again this year as companies seek to refocus and adapt to changing market conditions, according to PwC. Historically, spin-offs have outperformed the market and their parent companies over 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 soars and supplies remain limited, oil and gas companies could spin off renewable energy or low-carbon businesses to capitalize on the growing interest in clean energy and environmental, social and governance (ESG) investments. For example, BP recently announced plans to spin off its solar power joint venture, Lightsource BP, into a separate public company.
Another sector where more spinoffs are expected is the utilities industry. As power grids struggle to cope with extreme weather events and demand fluctuations, utilities can segregate non-core or underperforming assets to improve operational efficiency and financial performance. Duke Energy, for example, is reportedly considering spinning off its Midwest commercial generation business, which sells power into deregulated markets.
But spinoffs are not without risks and challenges. Careful planning, execution, and communication are required to ensure a smooth transition and avoid potential pitfalls. Key factors that can affect the success of a spin-off include timing, valuation, governance, branding, and stakeholder engagement.
If you would like to learn more about spinoffs and how they can help your company create value during a crisis, contact us today for a free consultation.