Conduent Spinoff Notes

April 23, 2022 Update

Conduent (CNDT) announced on April 7, 2022, that it is pursuing a separation of its Transportation business through either a sale or spin-off. This translation looks really interesting to me. First, Conduent is cheap. It’s trading at a TTM EV/EBITDA multiple of 6.1x and P/ TTM FCF multiple of 12.6x. Peers generally trade at ~12x EBITDA or higher. Second, insiders have been buying like crazy. Conduent does have a relatively high debt load (net debt to EBITDA of 3.8x) but it has no meaningful maturities until 2026 (and the majority of debt maturities in 2028 or beyond). And last but not least, Carl Icahn owns 18% of shares.

Conduent is a business process outsourcing company. It has three segments: Commercial (50% of revenue, 30% of EBITDA), Government (32% of revenue, 56% of EBITDA), and Transportation (18% of revenue, 14% of EBITDA).

I don’t know why (I’m going to talk to the company) Conduent is spinning off/selling Transportation. Perhaps it’s because it contributes the lowest amount to revenue and EBITDA. It isn’t the lowest margin segment (Commercial is slightly lower). Conduent didn’t give any guidance related to timing.

More work to do, but it looks really interesting.