On August 6, 2015, Emergent BioSolutions Inc. (NYSE: EBS) announced its intention to separate the company’s Biosciences business into a separate, stand-alone publicly-traded company. The separation is to be completed via a tax-free distribution to EBS shareholders and is expected to be completed by mid 2016, subject to favorable opinion by tax counsel, private letter ruling from the Internal Revenue Service, execution of inter-company agreements by Emergent and the new Biosciences company, the effectiveness of the Form 10 registration statement, and final approval of the transaction by Emergent’s board of directors. Emergent expects to provide the Biosciences company with a fixed cash contribution of $50 million to $70 million. Additional sources of cash to support R&D investment will include commercial product sales and partnership funding. Obligations under the company’s 2.875% Convertible Senior Notes due 2021 will remain with the parent company following completion of the transaction.

EBS is a global specialty biopharmaceutical company whose core business is focused on providing specialty products for civilian and military populations that address intentional and naturally emerging public health threats. The company has two operating divisions: biodefense and biosciences. The biodefense division is directed to government-sponsored development and procurement of countermeasures against potential agents of bioterror or biowarfare and targets the infectious disease anthrax. The main product in biodefense is BioThrax, the only vaccine approved by the FDA for the prevention of anthrax. Operations in this division include biologics manufacturing, regulatory and quality affairs, marketing and sales in support of BioThrax, and a product development infrastructure in support of investigational product candidates. BioThrax product revenues were, $450 million in 2014, $313 million in 2013 and $282 million in 2012, with BioThrax representing 55%, 79%, and 77% of sales in those years respectively.

The SpinCo, which will be named at a later date, is a biopharmaceutical company focused on novel oncology and hematology therapeutics and is comprised primarily of products acquired in the company’s 2010 acquisition of Trubion Pharmaceuticals Inc. The SpinCo will consist of certain assets currently in Emergent’s Biosciences division, including the ADAPTIR (modular protein technology) platform including bi-specific therapeutics based on Redirected T-cell Cytotoxicity (RTCC), a new approach within immuno-oncology; MOR209/ES414, a bi-specific therapeutic for metastatic castration resistant prostate cancer currently in Phase 1 clinical development in partnership with MorphoSys AG; and a commercial product portfolio consisting of IXINITY, WinRho, HepaGam B, and VARIZIG.

Following the spin-off, the parent company, which will maintain the Emergent BioSolutions name and continue to trade on the NYSE as “”EBH,”” will remain its medical countermeasure focus. Notably, the company’s largest product, BioThrax, had sales of $246 million in 2014, but is expected to grow to almost $500 million by 2018, primarily through a new manufacturing facility, which is expected to triple capacity in 2016. In total, the post-spin parent company generated 2014 sales of $370.5 million and EBITDA of $114.7 million. Publicly-traded comparables include specialty pharmaceuticals companies with a focus on vaccines and antibody therapies and more niche disorders, including Valeant Pharmaceuticals (NYSE: VRX), Endo International Plc (NASDAQ: ENDP), Shire Plc (SHP LN), and Recordati Spa. (REM IM). These companies trade at a wide range of multiples, ranging from 3x to 7x TTM sales and 12x to 16x TTM EBITDA, depending on the target application of drugs and addressable market size. However, it can reasonably be expected that post-spin EBS will garner a discounted multiple owing its more targeted customer base and addressable market, mainly the US Government. Applying discounted multiples of 3.5x and 10x to TTM sales and EBITDA, respectively, generates an average implied enterprise value of $1,222 million for post-spin EBS.

SpinCo generated 2014 sales of $79.6 million and an EBITDA loss of approximately $46.2 million. SpinCo’s publicly-traded comparables include the same group of specialty pharmaceuticals companies. SpinCo can be expected to garner a more in-line comparable multiple. Applying a multiple of 4.5x to TTM sales generates an implied enterprise value of $358 million for this business.

The above analysis generates an implied sum-of-the-parts enterprise value of $1,580 million for pre-spin EBS. Accounting for net debt of $35 million and 38.3 million shares currently outstanding generates a pre-spin fair value estimate of $40 per share for EBS. This fair value estimate represents 20% upside to the current (intraday) share price of $33.55, implying the transaction may unlock incremental value.

On May 23, 2016, after the market close, Varian Medical Systems Inc. (NYSE: VAR) announced that it intends to spin off its imaging components business as an independent, publicly traded company. The spin-off, which is expected to be completed via a tax-free distribution of shares in the new yet to be named company, is planned to be completed by year end calendar 2016, subject to final approval by VAR’s board of directors, receipt of a favorable tax opinion from counsel, and the effectiveness of a Form 10 registration statement. The spin-off is expected to have no impact to F2016 (Sept. year end) non-GAAP guidance, while the company expects to incur $35 million in one-time costs associated with the spin-off. The company will hold an investor day on June 21, 2016, where further details on the transaction will be discussed.

VAR designs, manufactures, sells and services a variety of hardware and software products used in the treatment of cancer patients for radiotherapy, stereotactic radiosurgery, sterotactic body radiotherapy, and brachytherapy therapies. Additionally, the company designs, manufactures, sells and services X-ray imaging components used in a variety of applications. X-ray applications include radiographic, mammography, special procedures, and industrial applications, amongst others. The company generated $3.1 billion in revenue, and $618 million in adjusted EBITDA in F2015. The two segments largely serve differing customer bases, and largely have separate manufacturing, sales and marketing operations that results in minimal synergistic benefits in maintaining the current corporate structure.

VAR currently reports results under two segments: Oncology Systems and Imaging Components. The Oncology segment, which will comprise the parent entity following the spin-off, controls the cancer treatment applications. Products include a variety of linear accelerators, treatment simulation and verification equipment and accessories, amongst others. Oncology products are used by hospitals and clinical radiation oncology departments for advanced treatments. Additional end users include neurosurgeons, university research departments, community hospitals, private and governmental institutions, physicians’ offices and cancer care clinics. The parent company will also control particle technology businesses that are currently categorized as other.

Management expects that there will be $20 million in cost dis-synergies that will remain at the parent company, with plans to reduce stranded costs through cost savings with a target of achieving a 22% pre-tax margin over the next several years. Oncology generated $2.3 billion in revenue in F2015, flat from the year prior, approximately $1 billion of which was derived from recurring service revenue. The segment operated with a 21.9% EBITDA margin. The far smaller Other category generated $143.9 million in revenue and a loss before interest, taxes, depreciation, and amortization of $26.3 million. Corporate costs totaled approximately $40 million annually over the past two years. Following the separation, it can be expected that the parent company will maintain a net cash position providing ample ability for the oncology business to act on acquisitions if opportunities arise.

As a basis for estimating the value of Varian Medical Systems, the post spin parent entity, one can reasonably assume the post-spin parent generates $2.6 billion in F2016 revenues—representing the mid-point of management’s guidance of 4-5% revenue growth. Assuming the business generates a 19% EBITDA margin, post-spin VAR can be expected to generate $494 million in F2016 EBITDA. Peers for the post-spin parent company include advanced medical products manufacturers including, Elekta AB (EKTAB SS), Ion Beam Applications S.A.(IBAB BB), Sectra AB (SECTB SS) and Hamamatsu Photonics KK. (6965 JT), which have traded on average, at approximately 14x forward EBITDA over the last year. Applying a 14x multiple generates an implied enterprise value of $6.9 billion for post-spin VAR.

The spin company will be comprised of the Imaging Components business, whose products include X-ray imaging components including X-ray tubes, flat panel digital image detectors, image processing software and workstations, and automatic exposure control systems. Products are generally sold to original equipment manufacturers (OEM), which then incorporate components into medical diagnostic, dental, veterinary, and industrial imaging equipment. Included within the spin company’s products are security and inspection products used for cargo screening at port and borders. Security products are also sold to OEM customers.

The Imaging Components company is expected to be profitable and generate positive cash flow. Initial thoughts on capitalization include a debt free balance sheet with a portion of VAR’s cash position being distributed to the spin entity. The spin company will target operating margins of 20% over the next couple of years. Imaging components generated $611.2 million and EBITDA of $147 in F2015, representing 24.1% EBITDA margin. EBITDA margins have declined from 28.1% in F2013 as the company experienced weakness in oil based economies that cut back on security spending, currency headwinds, and in-sourcing of products by a major panel customer. Management believes that having past the anniversary of most of those external factors that the Imaging business has stabilized. Through 1H F2016 Imaging components revenue declined 11.3% versus 1H F2015, while segment operating income declined 37.3% over the same time period.

For the spin entity, one can reasonably assume the business generates F2016 revenues of $544 million, assuming the 11% revenue decline from 1H F2016 continues through the year. Assuming a 21% EBITDA margin, roughly in-line with 1H F2016 operating margins and assuming stable depreciation expense, the post-spin business could be estimated to generate approximately $114 million in F2016 EBITDA. Medical imaging and subsystems peers include Comet Holding AG (COTN SW), Guerbet (GBT FP), and Analogic Corp (NASDAQ: ALOG), which trade, on average, at 10.6x 2016 estimated EBITDA. Applying the peer multiple to our EBITDA estimate generates an implied enterprise value of $1.2 billion for the post-spin entity.

The above analysis generates a pre-spin sum of the parts enterprise value of $8.1 billion. Accounting for $153 million in net cash and 95.2 million shares outstanding, this preliminary exercise results in a fair value estimate of $87 per share, representing approximately 5% appreciation potential from the current price ($83.07 as of this writing).

On May 24, 2016, after the market close, Hewlett Packard Enterprise Co. (NYSE: HPE) announced that it intends to spin off its enterprise services business, which will immediately be merged with Computer Sciences Corp. (NYSE: CSC) in a Reverse Morris Trust (RMT) transaction. The spin-off and merger are expected to be completed via tax-free transactions, and are expected to be completed by March 31, 2017, subject to regulatory and shareholder approvals, and receipt of a favorable tax opinion from counsel.

The transaction is valued to HPE shareholders at approximately $8.5 billion including $4.5 billion in shares of the newly combined CSC (representing approximately 50% ownership for HPE shareholders), $1.5 billion via a cash dividend, and the assumption of $2.5 billion in debt and other liabilities.

The separation of the enterprise services business makes sense on two fronts. First, the spin-off will result in improving HPE’s growth profile and free cash flow generation ability. Secondly, the combination of the enterprise services segment and CSC provides for increased scale and efficiencies to the combined company. The Enterprise Services business and CSC have experienced revenue declines in recent periods, while operating profitability has benefited from cost cutting and improved solutions delivery. The merged CSC is expected to realize $1 billion in first-year cost synergies, with a year-end run rate of $1.5 billion (post-close).

Interestingly both HPE and CSC have recently been involved in separate spin-off transactions. HPE was spun off from HP Inc. (NYSE: HPQ) in October 2015 as the company separated its enterprise business from its legacy PC and printing business. CSC completed the spin-off of its government services business in November 2015 into a new company CSRA Inc. (NYSE: CSRA).

HPE currently consists of two primary segments: Enterprise Group and Enterprise Services. Within the Enterprise Group, which will make up the majority of the parent entity following the Enterprise Services spin, the largest sub-segment is storage and servers, at approximately 40% of segment revenue, followed by Industry Standard Systems, at approximately 26% of segment revenue. The Enterprise Group generated $27.9 million in net revenue and $4.0 billion in EBITDA in F2015 (October year end), while an additional $6.8 billion in revenue and $595 million in EBITDA was generated from ancillary businesses that will remain with the parent over the same time period.

HPE’s Enterprise Services segment generated $19.8 billion and $1.0 billion in EBITDA in F2015. F2015 results represented an 11.6% decline in revenue while EBITDA margin increased 140 basis points to 5.1%. Revenue declines were a result of the completion of several large contracts and unfavorable impact of foreign exchange rates; Margin expansion was driven by improved delivery efficiencies across service delivery and in underperforming contracts. Through 1H F2016 Enterprise Services delivered stable revenue on a constant currency basis and declined 4.1% on a GAAP basis. EBITDA margin for the ES group increased to 5.9% in 1H F2016. On management’s conference call it was stated that ES margins were expected to increase to 7%-9%.

Following the spin-off of CSRA, CSC is now a provider of IT and professional services focused on Global Business Services and Global Infrastructure Services, which provides virtual desktop solutions, data center management, cyber security, and other to clients globally. Global Infrastructure Services provides end-to-end applications services, consulting, big data services, amongst others to enterprise clients worldwide. On a pro-forma basis, accounting for the spin-off of CSRA, CSC generated $8.1 billion in revenue and $804 million in EBITDA in F2015 (March year end). Through 3Q F2016 revenue declined 10.2% with operating margins of 8.5% (versus 9.1% through 3Q F2015). The merged entity is expected to generate annual revenue of approximately $26 billion, and will be led by current CSC CEO Mike Lawrie.

Following the spin and merger transaction, and assuming a 1% year-over-year revenue decline, HPE can be estimated to generate F2016 revenue of $34.4 billion. Assuming EBITDA margin of 13.5%, consistent with 2015 levels, the business could reasonably generate $4.6 billion in EBITDA. Management has cited that recent margin pressure has been a result of unfavorable FX rates and a shift in product mix. Comps for the post-entity include storage and enterprise networking equipment suppliers EMC Corp. (NYSE: EMC), NetApp, Inc. (NASDAQ: NTAP), Cisco Systems, Inc. (NASDAQ: CSCO) and Juniper Networks, Inc. (NASDAQ: JNPR), which trade, an average at a multiple of 6.6x 2016E EBITDA. Applying an in-line multiple to estimate F2016 EBITDA generates an implied enterprise value of $30.6 billion. Accounting for a post spin net debt of $4.0 billion, which incorporates a $1.5 billion dividend from CSC and the reduction in debt of $2.5 billion, a fair value estimate for post spin HPE of $15.52 is derived.

The merged CSC can be forecast to generate $26 billion in F2017 revenues assuming a 7% decline from 2015 levels in 2016, following which revenue stabilizes. Assuming EBITDA margin of 7.0%, the business could reasonably generate $1.8 billion in EBITDA in F2017. Comps for the merged entity include technology consulting companies including Cognizant Technology Solutions Corp. (NASDAQ: CTSH), Accenture plc (NYSE: ACN), IBM (NYSE: IBM), Cap Gemini S.A. (Cap FP), and Infosys Ltd. (NYSE: INFY), among others. These companies currently trade at a multiple of 9.6x 2016E EBITDA. Note that multiples have expanded over the past 12 months owing largely to industry consolidation. Applying a comparable multiple to the estimated F2017 EBITDA generates an implied enterprise value of $17.5 billion. Incorporating net debt of $4.8 billion, which includes the decrease in cash of $1.5 billion and increased debt of $2.5 billion, and shares outstanding of 276.1 million, which takes into account 138.1 million new shares being issued to HPE share holders, a fair value estimate of $46 per share is assigned to post merger CSC. The post-merger CSC fair value estimate implies minimal upside from the current share price of $44.30 in after-hours trading following the announcement.

When incorporating the value of CSC shares issued to HPE shareholders, a pre-spin fair value estimate of $19 per share is assigned to HPE, consisting of $15.52 per share in the post-spin entity and $3.67 per share in value from the CSC shares received. The HPE pre-spin fair value estimate represents 6.7% implied upside from HPE’s share price of $17.98 in after-hours trading following last night’s announcement.

On May 12, 2016, Honeywell International Inc. (NYSE: HON) announced that it intends to spin off its Resins and Chemicals business as an independent, publicly traded company. The spin-off is planned to be completed by early 2017, subject to final approval by HON’s board of directors, receipt of a favorable tax opinion, and the effectiveness of a Form 10 registration statement. The spin-off is expected to have no impact to financial guidance.

Honeywell is a Fortune 100 diversified technology and manufacturing company providing aerospace products and services, control, sensing and security technologies, turbochargers, automotive products, specialty chemicals, electronic and advanced materials, and process technology for refining and petrochemicals. The company generated consolidated revenues of $38.6 billion in 2015 (a 4% year-over-year sales decline) and has a market capitalization of over $86 billion.

Honeywell’s decision appears to underscore concerns regarding heightened competition from Chinese manufacturers that have increased exports to the U.S. Notably, Chemical maker Royal DSM NV (DSM NA) of the Netherlands sold its plastics and resin business to CVC Capital Partners Ltd. for $816 million in March 2015. Accordingly, the spin-off will allow the spin entity, to be named AdvanSix Inc., to offset increasingly unfavorable pricing dynamics by scaling its business via more focused capital investments for growth. Sales in this business also tend to be more volatile than Honeywell’s core businesses, fluctuating with the market price of raw materials, which are in turn correlated to the price of oil. With Honeywell trailing its 4-6% organic growth target, the transaction will also provide an additional source of cash for the post-spin parent to pursue its acquisition strategy and potentially return to growth. Note that Honeywell dropped its bid for UTX Technologies, Inc. (NYSE: UTX) on March 1 amid resistance from the target.

AdvanSix comprises a sub-segment of Honeywell’s Advanced Materials business, which generated $3.5 billion in consolidated segment 2015 sales (9% of consolidated sales), and experienced a 10% year-over- year organic sales decline, owing primarily to volatility in raw materials pricing. Based on today’s press release, AdvanSix generated approximately $1.3 billion in trailing twelve months’ revenues. The company is a global, leading manufacturer of Nylon 6, a polymer resin used to produce engineered plastics, fibers, filaments, and films that, in turn, are used in end products such as automotive and electronic components, carpets, sports apparel, fishing nets, and food and industrial packaging. AdvanSix also produces Sulf-N® ammonium sulfate fertilizers and chemical intermediates, including phenol, acetone, and Nadone® cyclohexanone, and is the largest single-site producer of caprolactam.

As a basis for estimating the value of the post spin entities, one can estimate Honeywell’s post spin trailing twelve months’ sales at approximately $37.3 billion. Comparables for post-spin Honeywell include a broad range of manufacturers of specialty industrial products across multiple end markets, include United Technologies Corp. (NYSE: UTX) in aerospace and TE Connectivity Ltd. (NYSE: TEL) in electronic components and network solutions These companies trade at a multiple of 2.5x revenue, a slight premium to HON’s current EV/sales multiple of 2.3x. Applying this peer multiple to sales generates an implied enterprise value of $93,203 million for the post-spin parent entity.

Comparables for post-spin AdvanSix include manufacturers of Performance Materials including Albemarle Corp. (NYSE: ALB), BASF SE (BAS GR), The Dow Chemical Company (NYSE: DOW), Dupont (NYSE: DD), and China Petroleum and Chemical Corp. (386 HK). This peer group trades, on average, at 2.9x trailing sales. Applying the peer multiple to estimated sales generates an implied enterprise value of $3,770 million for the business.

Accounting for $7.7 billion in net debt and 762.1 million in shares outstanding, this preliminary exercise results in a fair value estimate of $117 per share. Given the sum-of-the-parts fair value estimate approximates the current share price ($114.11 at the time of this writing), the shares appear fully valued for the transaction, which is not surprising given the size of the spin entity relative to the parent entity as well as the former’s more challenging industry fundamentals and growth trajectory.

On May 11th, APN News & Media Ltd (Ticker: APN AU, Market Capitalization: A$648 million—US$ 475 million), an Australian media organization, announced its decision to spin-off its New Zealand assets (“NZME”) into a separate entity listed in the Australian and New Zealand stock exchanges. The decision is part of a broader restructuring of the business that includes a rights offering prior to the demerger. An information memorandum on the transaction was published in conjunction with the announcement. The spin-off is subject to Board and shareholder approval as well as customary regulatory approvals. The shareholders’ meeting with regard to the spin-off will be held on June 16th, 2016. It is expected that the demerger will be completed by the end of June or early July.

As a last point, one has to consider the effect of the rights offering. Per the terms of the transaction—which will be completed within May—343 million shares will be issued increasing sharecount to 1,372 million shares. The valuations of both NZME and post spin-off APN account for the higher number of shares as well as the lower net debt. However, before considering an investment, one has to compare the sum-of-the-parts APN valuation of A$0.60 per share to the current price of its stock plus to effect of the offering. Shareholders prior to the offering own a share priced at A$0.63, and have the right to acquire one share for every three owned at A$0.53—thus the resulting, blended share price stands at A$0.61.

• HSC reported adjusted EPS of $0.03 in 1Q 2016 (versus $0.20 in the prior period) on an about 22% decline in total revenue to $353 million. Adjusted operating income decline 54% to $18 million but topped HSC’s $6-$11 million guidance while adjusted EBITDA fell 31.5% to $54 million.

• Net debt declined by almost $14 million to $818 million and the leverage ratio at quarter-end was 3.0x (compared with its 4.0x covenant). HSC is targeting a net leverage ratio of 3.0x-3.2x at year-end 2016.

• The company reaffirmed full-year financial guidance, which calls for consolidated adjusted operating income and EPS of $80-$100 million and $0.13-$0.33, respectively. The company also expects to generate free cash flow of $50-$70 million.

• By segment, HSC expects M&M revenue down 15%-20% with EBIT flat to down double-digits while Industrial sales are expected to fall 30%-35% with adjusted operating income down 40%-50. At Rail, revenue is expected to increase 10%-15% with EBIT remaining flat to slightly down (ex-FX).

• While HSC did not specifically comment on the planned separation of the M&M segment on the conference call it did recognize an incremental $3.3 million of “separation costs” and it is our sense from discussions with management that the transaction remains on track for late-2016/early-2017.

• Based on our initial 2017E EBITDA forecast of $237 million (and a weighted average multiple of 7x) the sum of the parts fair value is revised to $9 (from $10) with further upside optionality of ~$2 per share from the potential monetization of the HSC’s 26% stake in the Brand joint venture.

• HSC has returned about 8% (versus a 7% increase in the S&P 500 Index) since our initial report in February. Our revised fair value implies incremental upside of roughly 25%.

On May 3, 2016, Biogen Inc. (NASDAQ: BIIB) announced that it intends to spin off its hemophilia business as an independent, publicly traded company. The spin-off is planned to be completed by the end of 2016 or early 2017, subject to final approval by BIIB’s board of directors, receipt of a favorable tax opinion, and the effectiveness of a Form 10 registration statement.

Founded in 1978, Biogen is one of the world’s oldest biotechnology companies and provides innovative therapies for neurological, autoimmune, and rare diseases including multiple sclerosis (MS) and hemophilia. The consolidated company generated revenues of $9.1 billion for the year ended December 31, 2015. The company announced a corporate restructuring in late 2015, which included the termination of a number of pipeline programs (primarily in immunology and fibrosis) and an 11% reduction in workforce. These changes are expected to reduce the current annual run rate of operating expenses by approximately $250 million.

The spin-off will allow both companies to focus on and pursue their respective strategic priorities specific to their core commercial therapies and assets, while leveraging distinct capital allocation strategies. For investors, the separation should provide greater visibility into the financial and operational structures of each company and a clearer understanding of their respective strategies.

The spin entity, to be named at a later date, will focus on the discovery and development of therapies for the treatment of hemophilia. Currently marketed products are ELOCTATE and ALPROLIX, indicated for the treatment of hemophilia A and B, respectively. ELOCTATE and ALPROLIX generated combined revenues of $640 million during the twelve-month period ended March 31, 2016, up from $554 million in revenues in 2015. The spin entity is expected to continue to develop and commercialize ELOCTATE and ALPROLIX under Biogen’s existing collaboration agreement with Swedish Orphan Biovitrum AB (publ)(Sobi). The company also plans to bring longer acting therapies utilizing the XTEN technology into clinical development in the first half of 2017 and to accelerate the development of bispecific antibodies and hemophilia-related gene therapy programs. The company will also conduct additional studies to confirm early data that suggest ELOCTATE’s potential to rapidly induce immune tolerance in hemophilia patients who develop inhibitors. John G. Cox, Biogen’s current Executive Vice President, Pharmaceutical Operations & Technology, will serve as the Chief Executive Officer of the new company. The spin entity is expected to be capitalized with a positive cash position and no debt.

As a basis for estimating the value of the post spin entities, current consensus estimates for BIIB’s drug portfolio can be used. It is forecast that ELOCTATE and ALPROLIX will generate combined revenue of $790 million and $955 million in 2016 and 2017, respectively, representing 43% and 21% year-over-year growth. Comparable companies include pharmaceutical companies with products focusing on hemophilia including Baxalta Inc. (NYSE: BXLT), Bayer AG (BAYN GY), Pfizer Inc. (NYSE: PFE) and Emergent Biosolutions Inc. (NYSE: EBS). These companies trade at multiples of revenue between 2.0x and 5.0x representing a wider portfolio of drugs and slower top line growth (between 5% and 7% annually) versus the spin company. Given the spin company’s higher revenue growth rate relative to this group, it is appropriate to diversify the comparable to include specialty pharmaceutical companies with similar revenue growth expectations, including BioMarin Pharmaceutical Inc. (NASDAQ: BMRN), and Incyte Corp. (NASDAQ: INCY), amongst others, which trade at approximately 10.5x 2017 consensus revenue, and are expected to generate growth north of 20% year-over-year through 2017. Applying this peer multiple to the spin company revenue forecast results in an expected enterprise value of $10.0 billion.

Comparables for post-spin Biogen include large pharmaceuticals companies with MS therapies including Novartis AG (NYSE: NVS), Merck & Co. (NYSE: MRK), Teva Pharmaceutical Industries Ltd. (NYSE: TEVA) and Sanofi (NYSE: SNY). This peer group trades, on average, at 3.3x 2017 consensus revenue, with a range of 2.0x to 4.5x. BIIB has historically traded at a premium to larger pharmaceutical peers. As, such, it could be expected to also trade at a premium following the spin-off of the far smaller hemophilia company. Applying 5.3x to 2017 forecasted revenue of $10.7 billion, based on consensus drug sales and stable JV and other revenues, the parent entity can be estimated to have a post-spin enterprise value of $56.8 billion. The 5.3x multiple is in line with BIIB’s 10-year historical forward revenue multiple. Accounting for $233 million in net cash and 219 million in shares outstanding, this preliminary exercise results in a fair value estimate of $306 per share, representing approximately 12% upside potential from the current share price ($273.69 at the time of this writing).

On April 22, 2016, after the market close, WestRock Company (NYSE: WRK) Board of Directors approved the spin-off of its Specialty Chemicals business, Ingevity Corporation. Shareholders of record as of May 4, 2016 will receive one share of Ingevity for every six shares of WRK owned. The distribution is expected to be made on May 15, 2016. Beginning on or about May 2, 2016, it is expected that “”when-issued”” trading will begin for shares of Ingevity on the New York Stock Exchange (NYSE) under the ticker symbol “”NGVT.WI””. WestRock shares will trade “”when-issued”” under the symbol “”WRK WI””. Ingevity and WestRock common shares are expected to begin “”regular way”” trading on May 16, 2016 on the NYSE under the ticker symbol “”NGVT”” and “”WRK,”” respectively.

WestRock is North America’s second-largest containerboard producer (with a 20% market share) and the largest producer of paperboard (with a 25% share) on the continent. WestRock is also the number-two containerboard producer in Brazil (with a 20% share) and has a small presence in the Indian corrugated market. The spin-off of the Specialty Chemicals business will result in a consumer-focused global packaging company. That said, WestRock has substantial work ahead in improving overall operating performance. In conjunction with the spin-off, the company has outlined a comprehensive plan to implement substantial cost reductions and improve margins. As a result of the merger of MeadWestvaco and RockTenn, management has previously noted that it expects to achieve total annual run-rate deal synergies of $300 million by the end of the third year (the majority by the end of year two). In addition to the deal synergies, the RockTenn platform was already on track to realize annual productivity gains of $200 million annually in F2016-2018 (partially offset by approximately $75 million per year of inflation headwinds), while the MeadWestvaco side of the business still has further runway ahead on its own two major cost-saving initiatives.

The post-spin specialty chemicals company, Ingevity, consists of two business segments: Performance Chemicals and Performance Materials. The Performance Chemicals segment primarily addresses applications in three product families: pavement technologies, oilfield technologies, and industrial specialties. The Performance Materials segment consists of the company’s carbon technologies business, which primarily produces automotive carbon products used in gasoline vapor emission-control systems.

The post-spin fair value estimate for NGVT has been revised to $35 per share (previously $5.40 per share), primarily reflecting valuation expansion in the Specialty Chemicals sector, and updated balance sheet information, which consists of a slightly lower cash balance or $15 million (from $70 million previously), debt of $586 million (includes non-controlling interest of $5 million), and approximately 42 million shares outstanding (1:6 distribution ratio). The post-spin fair value estimate for WRK has been revised to $45 per share (previously $35 per share), primarily to reflect higher revenue growth assumptions, a slight upward adjustment to expected cash distribution of $438 million and modest adjustment to share count.
The pre-spin sum-of-the-parts fair value estimate for WRK is revised to $51 (from $41), comprising $45 for post-spin WRK and $5.84 for NGVT. Post-spin, NGVT can be fairly valued at $35, based on a 1:6 distribution ratio. With the pre-spin sum-of-the-parts estimate implying 26% upside from current levels, we continue to recommend purchase of WRK shares. Note that since our initial purchase recommendation on February 25, 2016, shares have appreciated 32%, versus 7% for the S&P 500. For more details, please refer to The Spin-Off Report dated February 25, 2016.

Fair value increased to $53 (from $50) on better than expected operating results; Spectrum auction offers optionality and M&A activity likely to ramp in “early-2017”.

• MDP reported almost 30% growth in adjusted EPS to $0.92 in 3Q F2016 on an about 6% increase in revenue to $423 million. Bottom-line results, topped consensus of the $0.80 per share.

• The company also increased full-year EPS guidance to 3.25-$3.30 (from $2.90-$3.25), which is predicated on total company revenue growth in the low-to-mid single digits. National Media revenue is expected to be flat to up slightly while Local is expected to grow in the mid-to-high single digits.

• Meredith boosted its annual dividend by about 8% to $1.98 per share, which implies an about 4% yield.

• In terms of potential M&A activity, management indicated on its conference call that discussions are “quiet” ahead of the spectrum auction, which began today and is expected to last several weeks to months, but that it expects another round of “aggressive” consolidation in the Broadcasting arena to occur in “early calendar 2017”. To that end, MDP has publically stated its intent to pursue acquisitions and more recently expressed openness to separating its Broadcasting and Publishing assets, which would likely be accomplished via a spin/merger to gain further scale on either side of the business.

• Based on increased segment EBITDA forecasts of $223 for Broadcasting in (up from $209 million) and $161 million at Publishing (up from $154 million) but constant applied multiples we increase our fair value estimate to $53 (from $50), which, including MDP’s yield, implies incremental upside of about 10% (even before the optionality presented by the current spectrum auction and potential M&A activity).

• Notably, MDP has returned about 18% (versus a 10 % increase in the S&P 500 Index) since our initial report and the shares are up about 16% year to date (versus a 0.5% increase in the S&P). 

On April 22nd, Lifestyle International Holdings Ltd (Ticker: 1212 HK, Market Capitalization: HKD 16.4 billion—USD 2.1 billion), an owner and developer of department stores, disclosed that on February 15th, 2016, it had submitted an application to the Hong Kong Stock Exchange with regard to its proposed spin-off of its China operations. The company received approval for the transaction, and on April 22nd submitted its listing application (Form A1) to the stock exchange. The spin-off will be effected by means of a distribution in-specie to the company’s shareholders. No timeline for the demerger has been provided. The spin-off is subject to final Board approval as well as approval of its listing application.

The pre spin entity’s sum-of-the-parts enterprise value is HKD 20,500 million. Incorporating HKD 1,250 million in net cash—that includes HKD 5,090 million in investments—and HKD 1,973 million in non-controlling interests, Lifestyle International Holdings is valued at HKD 19,780 million.