Klarman is not afraid of spin offs

Klarman is not afraid to buy spin offs. In fact, he views such situations favorable for value investors who often look out for ignored and unloved assets.He purchased the shares of two subsidiaries of Tenneco Inc. One was Pactiv Corp which made branded food storage bags and trash bags. Also, the company was the market leader in a range of plastic packaging products. Due to market forces pushing the stock price down, the stock price dropped to about 10 times after tax earnings. The conditions to buy the stock were appealing. Management was loading up stock while earnings growth indicators were solid. There were plans to cut down costs and redeploy assets while price of raw materials was expected to drop. Here was a premium brand selling at a heavily discounted price.

Another spinoff of Tenneco was an automotive company which manufactured branded shock absorbers abd mufflers. Like Pactiv, it was a market leader in its respective product categories.Due to its small market cap, there was a heavy sell off by shareholders who felt that such small caps were ill-suited to their portfolios.This heavy sell off depressed the stock price, making it an attractive target for Klarman.