Recent Members Only Research

Golar LNG Spin-off – What’s It Worth?

Madison Square Garden Spin-off – Deep Dive

Corteva – Deep Dive

Kontoor Brands – Deep Dive

Riviera Resources – Notes from Meeting with Management

Insurance Auto Auctions – Deep Dive

August 2019 – Spin-off Links

Recently Announced Spin-offs

On July 29, 2019, Pfizer (PFE), announced that it will spin off its off-patent branded and generic business and then immediately merge it with Mylan (MYL), a leading generics company, in a Reverse Morris Trust transaction. Pfizer shareholders will own 57% of the new entity, while Mylan shareholders will own 43%. The new company is expected to have pro forma 2020 revenue of $19BN to $20BN, EBITDA of $7.5BN to $8.0BN and free cash flow of >$4.0BN. The transaction is expected to close in mid-2020.  On a pro forma basis, the new company is trading at 5.3x free cash flow and 5.8x EBITDA. Why is it so cheap? Mylan and other generic manufacturers are under investigation for price fixing.

On July 24, 2019, Tenet Healthcare (THC), one of the largest for profit hospital chains, announced that it will spin off of its Conifer Health Solutions (Conifer) business instead of selling it. Conifer handles patient payments for health care providers. According to press reports, the business has the potential to be valued up to $2.0BN. While the sale process generated significant strategic interest, THC management ultimately decided that a tax free spin-off would maximize shareholder value. In 2018, Conifer generated $1.533BN of revenue and $357MM of adjusted EBITDA (+26% growth over 2017). Unfortunately, the spin-off is not expected to be completed until Q2 2021.

Recent Spin-offs

On June 28, 2018, Insurance Auto Auctions (IAA), a spin-off of KAR Auction Services (KAR), began regular way trading. As expected, there was no indiscriminate selling and IAA performed well in initial trading. The stock is currently trading at an EV/’19 EBITDA multiple of 17.2x and a price/‘19 EPS of 32x based on consensus 2019 numbers. It’s closest peer, Copart (CPRT), trades at 19.4x ‘19 EBITDA and 29x ‘19 EPS. IAA looks fairly valued, but I will continue to watch IAA it closely as it has an excellent business model. It would be a great name to own at the right price.

DowDuPont (DWDP) spin-off, Corteva Agriscience (CTVA), began trading on June 3, 2019. Corteva is a leading company in the seed and crop protection market. The company’s products help improve farmers’ yields and protect against insects and disease. I recently published a deep dive on the stock which you  can access here (members only). CTVA is trading at 12.0x 2019 EBITDA guidance of $2.25BN (midpoint).

Upcoming Spin-offs

The Ensign Group (ESNG) announced that the spin-off of its home health and hospice agencies will occur on October 1, 2019. The spin-off will be named The Pennant Group and is expected to trade under the ticker PNTG. The RemainCo will focus on the skilled nursing industry. I published an overview of the opportunity here. It will be an interesting opportunity as the market cap of the spin-off will be ~15% of ENSG. As such, there could be indiscriminate selling and an interesting opportunity.

Echostar (SATS) recently announced that it will complete the spin-off and merger of its Satellite business with Dish Network (DISH). Echostar shareholders will receive ~0.24 of a share of DISH Class A common stock for each share of SATS that they own. The transaction is expected to be completed on September 10, 2019. The transaction will allow SATS to focus on its broadband services and will enable DISH to enter the US wireless market. This is very interesting from a strategic perspective, but a bit of a wild card as there are many moving parts.

More Spin-off Links

Seeking Alpha: Spree Capital Advisors Covectrus Thesis

Seeking Alpha: Covetrus Down Big After Q2 Miss

WSJ: Tenet Healthcare to Spin Off Conifer Unity

Seeking Alpha: Livent Susceptible to More Downside

Barrons: Arconic Looks to Unlock Value

Barrons: Interview with Resideo CEO

Bloomberg: Elanco to Buy Bayer’s Animal Health Division

Seeking Alpha: Sell Altaba, Buy Alibaba

Crains New York: MSG Stock Falls Due to Cost Overruns

Seeking Alpha: IAC Taking Match Group and ANGI Homeservices for a Spin

Golar LNG: What’s it Worth?

Seeking Alpha: Podcast Firm Libsyn Trades at Half Valuation of SAAS Peers

Seeking Alpha: Mallinckrodt – A Lot of Noise, But It’s Not What It Looks Like

Seeking Alpha: Alcon – Big Opportunity, Big Valuation