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In contrast, management anticipates post-spinoff IBM to generate mid-single-digit revenue growth over the medium term. Given that it is expected to have a strong balance sheet and long-term growth opportunities with its hybrid cloud and AI businesses, the market may perceive post-spinoff IBM as a growth stock, which would imply a higher valuation.
Should IBM shareholders still profit from its spinoff?
Sep 30, 2021 · IBM shareholders will receive at least 80.1% of Kyndryl's common stock when the spinoff is complete, with IBM retaining the remaining stake. IBM plans to exchange its stake in Kyndryl for IBM debt...
Should IBM shareholders buy kyndryl stock after the spin-off?
Oct 08, 2020 · IBM notes that the spinoff will still have investors receiving their dividends. It mentions that the combined dividends from each company won’t be lower than the current one offered by IBM. After...
What does IBM's spinoff of post-spinoff IBM mean for investors?
Oct 13, 2020 · IBM 's ( IBM 7.10% ) stock recently rallied after the tech giant announced it would spin off its managed infrastructure services unit into a …
What happens to investors when a Company spinoffs?
May 30, 2021 · When a spinoff happens, investors in the parent company automatically become investors in the subsidiary through the tax-free distribution of new shares. New investors can purchase shares of one or...
What does IBM spin off mean for shareholders?
An IBM logo As previously announced, IBM (ticker: IBM) will distribute 80.1% of its Kyndryl shares to current IBM holders. Each IBM holder will receive one Kyndryl shares for each five IBM shares held as of the record date of Oct. 25. The distribution will be tax-free to IBM holders.Oct 12, 2021
Do IBM stock holders get Kyndryl stock?
IBM stockholders got one share of Kyndryl for every five IBM shares held. Kyndryl CEO Martin Schroeter recently told Barron's that he views the company as a “$19 billion start-up,” which is reconfiguring its business for a world in which more and more IT workloads are shifting to the cloud and away from data centers.Nov 28, 2021
How does a spin off affect stock price?
When the spun-off company starts trading on its own, the share price of the parent company will drop by the value of the new company, now separated from the parent. The lost value will be reflected in the share price of the new company.
Why is IBM spinning off Kyndryl?
In a prepared statement, IBM CEO Arvind Krishna said: “The separation of Kyndryl is one of many actions we are taking to sharpen our focus on hybrid cloud and AI, leverage a portfolio clearly focused on technology and consulting, and achieve our growth objectives.Nov 4, 2021
What will happen to IBM stock after Kyndryl?
Starting on November 4, 2021, Kyndryl will begin “regular way” trading on the New York Stock Exchange under the symbol “KD.” Each holder of IBM common stock will receive one share of Kyndryl common stock for every five shares of IBM common stock held on October 25, 2021, the record date for the distribution.Nov 3, 2021
Is Red Hat Part of IBM or Kyndryl?
Kyndryl and IBM are Red Hat partners, but they don't have additional preferential pricing, funds or treatment from the Raleigh, N.C.-based open source software provider, Farrell said.Nov 8, 2021
Is a spin-off good for shareholders?
The main reason for a spinoff is that the parent company expects that it will be lucrative to do so. Spinoffs tend to increase returns for shareholders because the newly independent companies can better focus on their specific products or services.
What are spin-off benefits?
A spin-off occurs when a company takes a division or piece of its business and creates an entirely new entity. You can sell a spin-off and receive the benefits in one lump sum or retain control in the company and reap the benefits and the expenses.
How many shares do you get in a spinoff?
one shareWhat does a spin-off mean for shareholders? Shareholders of the parent company will normally receive shares of the spin-off company. The investor, generally, will receive one share of the spin-off for a pre-determined amount of shares of the parent company that the investor holds.
What happens to my IBM stock when company splits?
Does a stock split change my equity in IBM? No. The stock split does not change your proportionate interest in the company.
What is the difference between IBM and Kyndryl?
As IBM spins out its Global Technology Services business, we speak to the UK chief of the new independent company about its plans. IBM has completed the separation of its Global Technology Services (GTS) into Kyndryl, a separate publicly traded company. GTS was IBM's managed infrastructure business.Nov 4, 2021
Who are Kyndryl competitors?
Kyndryl Competitors ListCompanyMarketRankP/E RatioPSN Parsons1.7148 of 5 stars68.00VRNT Verint Systems2.0633 of 5 stars-794.89MDRX Allscripts Healthcare Solutions1.8365 of 5 stars22.57NTCT NetScout Systems1.9814 of 5 stars44.6112 more rows•3 days ago
NYSE: IBM
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Some details have emerged about IBM's plan to spin off a major business unit
The biggest move made by International Business Machines ( IBM 1.81% ) since CEO Arvind Krishna took the helm last year was the planned spinoff of the managed infrastructure services unit. The new company will be called Kyndryl, and it will be led by former IBM CFO Martin Schroeter.
1. IBM shareholders will become Kyndryl shareholders
The plan has always been for IBM to distribute shares of Kyndryl to its shareholders in a tax-free transaction. We now know more about what that transaction will look like. IBM shareholders will receive at least 80.1% of Kyndryl's common stock when the spinoff is complete, with IBM retaining the remaining stake.
NYSE: IBM
IBM plans to exchange its stake in Kyndryl for IBM debt over the following 12-month period. After a year, IBM won't hold any financial interest in Kyndryl if all goes according to plan. For IBM shareholders, no action is required to receive shares of Kyndryl.
3. Kyndryl is free cash flow positive if you make some adjustments
Measuring the profitability of a business that's still part of a larger parent company can be difficult. On an unadjusted basis, Kyndryl produced a pre-tax loss of $1.8 billion and a free cash flow loss of $0.3 billion in 2020.
4. IBM will be smaller but have higher margins
IBM is giving up around $19 billion of annual revenue by spinning off Kyndryl, but it's not giving up all that much free cash flow. IBM reported revenue of $73.6 billion and free cash flow of $10.8 billion in 2020. Excluding Kyndryl, revenue would have been $57.5 billion and free cash flow would have been around $10 billion.
5. IBM will be focused on the hybrid cloud
While Kyndryl has a large market opportunity, managed infrastructure services is a labor-intensive business. Kyndryl will have around 90,000 employees, so revenue per employee will be just over $200,000. That's lower than Walmart, for comparison.
What are the advantages of IBM?
1. IBM becomes more of a cloud company. With the purchase of Red Hat and the coming spinoff of the managed infrastructure services business, IBM becomes more of a cloud company. Image source: Getty Images.
Will IBM shareholders own NewCo?
IBM shareholders will hold a stake in IBM and receive shares of "NewCo," the temporary name for the new company, in the split. However, as the remainder of IBM and the IT infrastructure company go their separate ways, it could produce benefits for both new entities and their shareholders.
Is IBM cloud revenue growing?
By the second quarter of 2020, the cloud revenue growth rate increased to 30%. IBM has achieved this by succeeding with its hybrid cloud product, which it calls "a $1 trillion opportunity.". Nonetheless, with overall company revenue still falling, IBM has struggled to gain investor interest despite its successes in the cloud.
Is Newco under IBM?
It also claims a $60 billion services backlog. Nonetheless, NewCo has not prospered recently under the IBM umbrella. In the most recent quarter, global technology services, the division that controls managed infrastructure services, was the company's largest revenue driver at more than $6.6 billion.
When will IBM's spinoff close?
IBM's spinoff should close by the end of 2021. Before a potential spinoff-induced share price increase materializes, shareholders should focus on IBM's transition to the cloud, as it remains an important driver for the company's success.
Will Newco get a debt burden?
That suggests NewCo will get a pretty heavy debt burden. Besides, after an initial combined dividend that will correspond to at least IBM's current dividend, both entities will independently update their policies.
Is Newco part of IBM?
Indeed, NewCo's business will represent a significant part of IBM's GTS revenue, which decreased by 6.1% to $27.3 billion in 2019 because of declining legacy activities. And since NewCo won't include GTS' growing public cloud business, it is unlikely to generate revenue growth over the medium term.
When will IBM spinoff take place?
The spinoff will be tax-free and the company expects it to take place before the end of 2021. IBM notes that this will result in the majority of its revenue coming from cloud software and solutions. Currently, a little more than half of the company’s revenue comes from its services business.
Is IBM going to spin off?
October 8, 2020. IBM (NYSE: IBM) has announced a spinoff of part of its business as it looks to shift its focus. Source: Laborant / Shutterstock.com. Here’s what IBM investors need to know about the spinoff plans. The company wants to spin off its Global Technology Services division into its own publicly-traded company.
Is IBM a spinoff?
IBM has yet to come up with a name for the new company that will be created by the spinoff. Even so, it points out that it will be the leading managed infrastructure services provider upon its creation. The new company will focus on maintaining and upgrading infrastructure systems for customers. IBM notes that the spinoff will still have investors ...
Does IBM still have dividends?
IBM notes that the spinoff will still have investors receiving their dividends. It mentions that the combined dividends from each company won’t be lower than the current one offered by IBM. After that initial dividend, it will be up to each company’s Board of Directors to decide on dividend payments.
How much debt does IBM have in 2020?
IBM ended the second half of 2020 with $64.7 billion in total debt, down 11% from a year earlier, and it generated a free cash flow of $11.5 billion over the previous 12 months. 4. The future of IBM's dividend. IBM became a Dividend Aristocrat of the S&P 500 earlier this year after raising its dividend for the 25th straight year.
What is the Motley Fool's long call option for 2021?
The Motley Fool owns shares of and recommends Accenture, Amazon, and Microsoft and recommends the following options: long January 2021 $85 calls on Microsoft, short January 2021 $115 calls on Microsoft, short January 2022 $1940 calls on Amazon, and long January 2022 $1920 calls on Amazon. The Motley Fool has a disclosure policy.
What is Newco spun off?
The spun-off company, temporarily called "NewCo", includes businesses that generated $19 billion in revenue in the 12 months leading up to June 30. It will become the "world's leading managed infrastructure services provider" with over 4,600 customers in 115 countries, including more than 75% of the Fortune 100.
Does IBM have a single A credit rating?
In its presentation, IBM stated that it will maintain a single-A credit rating, while NewCo would target an "investment grade" credit rating -- which suggests it could assume more of IBM's debt after the split.
What is a spinoff in 2021?
Updated May 31, 2021. A spinoff is when a company takes a portion of its operations and breaks it off into a separate entity. In a spinoff, shares of the new company are distributed tax-free to shareholders of the parent company. Companies spin off portions of their operations for several reasons. When a company has a profitable division ...
Do spun off companies do well?
Even though spun-off companies generally do well in the long term, the early bumps in the road with which any new company must contend are enough to scare off some investors. Those looking for more stable returns tend to stick with the parent company.
Can I buy shares of both companies after a spinoff?
New investors can purchase shares of one or both companies. Either type of investor should be aware of a few things that typically happen to stock prices after a spinoff . It is common for the stock price of the parent company to take an immediate dip.
Is a spinoff good for investors?
Historically, spinoffs have been good for investors. On average, both the parent company and the subsidiary outperform the market during the 24-month period following a spinoff. Investors who have been able to withstand the unpredictability of the initial days and weeks have seen nice gains. New investors looking to take advantage ...
