Interactive Corp to spin off Expedia

It has happened, finally! Inteactive Corp (IACI) took some action to get people to respect its stock!

The market welcomed the spin-off by sending its shares around 6% higher. I have been buying Interactive shares as a value bet. Even after today's move, its revenue/cashflow is being ignored by the market.

The spin-off itself, Expedia, will be a good buy. Spin-offs tend to move lower during the first few weeks when the parent is part of an index. This is true due to the huge volume of money that tracks/flows into index funds these days. Index funds, by their very definition, cannot hold onto the shares of the spinoff, causing a temporary fall in the new shares. They recover within a few months as non-index funds pile on the undervalued shares after a while. There is also a chance that once an independent entity, the spinoff can end up on an index too, sending it a lot higher.

One person extemely glad about this announcement today must be Bill Miller. Interactive Corp forms a sizable part of his fund's holdings. The stars seem to be lining up for Miller to beat the S&P a 14th time, though it looked impossible just a few days ago that his streak would continue over to this year!

An additional thing to keep an eye on - Expedia can now focus on only the travel business and will be looking for more acquisitions. Will Priceline be the next target ? Ctrip, Lastminute are other possible targets.