Charlotte-based SPX Corp., with its stock price languishing at a 52-week low, is on the cusp of joining a growing trend in corporate America: the spin-off.
Its decision to split operations comes at a time when slow-growth emerging markets pose challenges to the industrial sector.
“SPX is realizing being a do-a-little-of-everything industrial company is not the strategy of the future,” said Nicholas Heymann, analyst for William Blair & Co.
The multi-industry manufacturing company with about 350 employees in Charlotte first said in October it will spin off its flow products division in the third quarter of 2015, which started this month. SPX Flow will be led by current SPX chairman and chief executive Chris Kearney.
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The remaining part of SPX will continue as a separate infrastructure company, with Gene Lowe, president of SPX’s thermal equipment unit, to serve as CEO. Both companies will remain in Ballantyne.
SPX, which moved its headquarters to Charlotte from Michigan in 2001, plans to update investors on its progress with the spin-off during its second-quarter earnings call July 29, according to a company spokesman, who did not respond to requests for further information.
In 2014, 65 companies broke up or spun off operations, a record since 2000.
Just this month, Charlotte-based energy company Babcock & Wilcox separated into two new companies, Charlotte-based Babcock & Wilcox Enterprises and Lynchburg, Va.-based BWX Technologies. On Friday, eBay spun off online payments company PayPal.
At SPX, the pending spin-off is creating a cloud of uncertainty for investors and analysts, Heymann said. Since the announcement October 29, the company’s shares are down about 31 percent, compared with a more than 6 percent increase in the S&P 500 Index.
“A lot of (investors) are looking into this and trying to figure out what’s going on,” Heymann said, referencing how he’d received several phone calls on the matter. “It’s an opaque situation.”
Kearney has said the split will benefit shareholders.
“We believe the spinoff will provide both companies greater flexibility to focus on and pursue their respective growth strategies,” he said in a conference call in October.
Heymann has been tracking SPX since John Blystone left General Electric to run the company in 1995.
At the time, SPX was an auto-parts company, and Blystone grew it into a diversified company via acquisitions. But acquisitions posed several hurdles for the company, such as droughts in capital spending, he said.
“And now, they’re trying to split this out,” Heymann said.
SPX was a Fortune 500 company two years ago, but it slipped off the list in 2014. In April, the company announced a net loss attributable to common shareholders of $7.1 million compared to gains of $318.2 million in the comparable period the previous year.
SPX’s stock price began to sputter late last year, which the company has attributed to the sell-off of 2 million shares by its largest shareholder, Relational Investors, and the impact of lower oil prices on some if its businesses. The shares closed Wednesday at $64.85, down about 1 percent.
In another setback, SPX shareholders in May rejected pay packages for Kearney and other top executives in a nonbinding vote. The decision came after Kearney received a 38 percent raise in compensation in 2014, from $8.4 million to $11.7 million, according to a March proxy filing.
While Kearney is hoping to appease shareholders with the spin-off, not all such moves pan out, experts say.
When the parent does the spinoff not to increase business focus, but to unload debt or environmental liabilities, it will suffer the consequences, said Jim Fink, chief investment strategist for Jim Fink’s Options for Income and Roadrunner Stocks.
Viacom’s spinoff of the Blockbuster video rental chain is one such example: Blockbuster was never able to shake its debt burden and ended up closing operations.
Of SPX’s two parts, the flow company is considered the faster growing one. But that doesn’t necessarily mean it will be the stronger performer, Fink said.
“In the case of SPX, the boring infrastructure company is going to do better than the high-growth flow company,” Fink said.
Analysts say the spin-off could lead other companies to buy one of the new firms or spur the new entities to make acquisitions of their own. Splits can allow for more efficient capital allocation, which investors endorse, said David Rose, an analyst for Wedbush Securities.
“For example, a growing flow business may have opportunities to acquire complementary flow businesses and the markets may look upon this more favorably,” he said.
Chaney: 704-358-5197; Twitter: @sechaney