June 2019 – Spin-off Links
Recently Announced Spin-offs
On June 17 2019, AECOM (ACM), announced that it would be spinning off its government management services business. The division generates ~$4BN in revenue which represents ~27% of total ACM revenue. The remaining business (Remainco) will be focused on designing, building, financing and operating infrastructure assets for other businesses and other organizations throughout the world.
After the announcement was made, Starboard, a 4% shareholder, wrote a letter to the company urging it to cancel its spin-off plans and instead sell its Construction Services business (15% of sales), which is lower margin. The tax free spin-off is expected to occur in the second half of 2020.
On May 9, 2018, TiVo (TIVO) announced that it intended to spin off its Products business in the first half of 2020. TIVO has been evaluating strategic options (including a sale of the company) for over a year. TIVO trades at 8.2x free cash flow, but the business is experiencing secular decline with revenue falling 17% in Q1 2019. TIVO’s IP business (the RemainCo) will be the more attractive business. In the first quarter, revenue grew modestly (excluding legacy licensing revenue which was lost) and margins were quite high. Nonetheless, TIVO’s high debt load and secular headwinds make the stock unappealing.
On May 22, 2019, VF Corp (VF) spun off Kontoor Brands (KTB). Regular way trading began the next day. KTB is a denim focused company. Its two main brands are Wrangler and Lee. I recently published a deep dive on the Kontoor Brands spin-off which you can read here (members only). After trading in the $40 range in when issued trading, KTB has fallen consistently since regular way trading began due to classic spin-off selling pressure. At KTB’s current price, it looks interesting. It’s trading at a P/E of 8.0x and a dividend yield of 8.4% ($2.24 annual dividend).
DowDuPont (DWDP) spin-off, Corteva Agriscience, 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. Due to its heavy focus on technology and innovation, Corteva is viewed as a company with a robust competitive position. Here is a good interview with the CEO of Corteva that reviews the company’s strategy. I recently published a deep dive which you can access here (members only). DWDP recently announced a $1BN share repurchase, and the stock has jumped. At its current price, it’s trading at 12.1x 2019 EBITDA. While CTVA’s valuation seems fair, I’m going to keep it on my watch list. It is fairly interesting given that the company is benefiting from the long term trend of a growing global population. Further, Corteva’s business is not particularly sensitive to the economic cycle.
On June 28, 2019, Insurance Auto Auctions (IAA), a KAR Auction Services (KAR) spin-off, will begin trading. I published a deep dive here. IAA is a very interesting business because it’s defensive and has near term secular tailwinds. Long (very long) term, it has secular headwinds due to autonomous vehicles and lower expected accident rates. We will see how it begins to trade come Friday although I do not expect indiscriminate selling.
More Spin-off Links
What is your favorite spin-off today?
Comment below and let me know.