Spin-off Links – May 2019 – Stock Spinoff Investing

Spin-off Links – May 2019

Recent Members Only Research

VF Corp – Kontoor Brands Spin-off Deep Dive

Arlo – Good First Quarter Results

DowDuPont – Initial Thoughts on DowDuPont’s Corteva Spin-off

KAR Auction Services – Spin-off (IAA) Deep Dive

Spin-off Resources

An interview where I discuss my best and worst spin-off investments as well as my spin-off investment process.

Guide: How Do Spin-offs Perform?

Other Spin-off Resources

Recently Announced Spin-offs

On May 21, 2019, Golar LNG (GLNG) announced that it will be spinning off its LNG carrier business. The spin-off will allow the remaining company to focus on its floating liquid natural gas business. Management expects the spin-off to occur within months, so I assume that the transaction will occur in Q3 2019. GLNG intends to maintain a majority ownership position in the spin-off and to raise capital independently for the spin-off. Thus, it’s unlikely the spin-off will be mispriced.

On May 6, 2019, the Ensign Group (ESNG) announced that it will spin off its home health and hospice agencies as well as all of its senior living facilities in a tax free transaction expected to be completed by Q4 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.

On May 7, 2019, Siemens (SIE GR) announced that it would spin off its Gas and Power Business. The transaction is expected to be completed by Q3 2020. Siemens noted that it will include its 59% stake in Spanish wind power subsidiary Gamesa. Similar to many industrial companies, Siemens has been working to slim down its portfolio. In 2018, it spun off its Healthineers medical technology business. Siemens’ Gas and Power business accounts for approximately ⅓ of total revenue. Barron’s provides a great overview of the challenges faced by Siemens’ and GE’s power generation businesses.

On April 30, 2019, Ingersoll-Rand PLC (IR), announced that it would spin off its industrial business and merge it with industrial pumps and compressors producer Gardner Denver Holdings (GDI) on a tax free basis, to create a company valued at $15BN. This spin-off is currently referred to as IndustrialCo and will keep the Ingersoll-Rand name and ticker. In 2019, it is expected to generate $6.6BN of revenue and ~$1.6BN of adjusted EBITDA. The transaction is expected to be complete by Q1 2020.

Recent Spin-offs

On May 23, 2019, VF Corp’s (VFC) spin-off, Kontoor Brands (KTB), began trading. 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).

Upcoming Spin-offs

On June 2, 2019, DowDuPont’s (DWDP) spin-off, Corteva Agriscience (CTVA), will begin trading. Corteva will be 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. Corteva is currently trading in the when issued market at $29 which implies a $22BN market cap and $27BN EV. It’s trading at 12.1x 2019 EBITDA guidance of $2.25BN (at the midpoint). Closest peers, FMC trades at 10.3x ‘19 EBITDA. Corteva’s initial valuation appears fair.

In June 2019, KAR Auction Services (KAR) will spin-off it’s salvage auction business (Insurance Auto Auction). I published a deep dive here. Assuming RemainCo is worth 9.5x forward EBITDA (discount to closest peer BCA Marketplaces which trades in London at 11.5x EBITDA) and IAA is worth 15.0x forward EBITDA (Copart, its closest competitor trades at 20.5x), KAR has some upside heading into the spin-off.

I continued to be a little worried about RemainCo as there appears to be significant competition in the whole car auction business. Specifically, several companies (including KAR through TradeRev) are offering the ability for dealers to run their own individual auctions online. This is requiring KAR to invest heavily and is negatively impacting margins.

More Spin-off Links

Barrons: Corteva Overview

Barrons: Corteva is a New Agriculture Stock. FMC is a Safer Bet

Barrons: Corteva Predicts Strong Earnings but Valuing it is Tough

Barrons: Corteva Stock Has a New Bull

Yahoo Finance: DuPont Plans 2 Billion Share Buyback

Seeking Alpha: Mallinckrodt -Assessing the Possible Turnaround

Barrons: L Brands Stock Gains Due to Surprise Profit

Seeking Alpha: Gap is Dead Money Until Spin-off

Yet Another Value Blog: JAX could Be a Tasty Takeover Target

Seeking Alpha: Arcosa Value Play In Unattractive Industry

Business Journals: VF Takes Denim in a New Direction with Spin-off