On July 8, 2016, after the market close, Liberty Interactive (NASDAQ: QVCA, QVCB, LVNTA, LVNTB) announced a new proposed distribution date for the spin-off of CommerceHub Inc. Shares of CommerceHub are now expected to be distributed on July 22, 2016 to Liberty Ventures (LVNTA, LVNTB ) shareholders of record as of July 8, 2016. (Previously shares were expected to be distributed on July 13, 2016) The spin company’s registration statement is still under review with the SEC resulting in the revised distribution date.
 

In the spin-off of CommerceHub, shareholders of Series A Liberty Ventures (LVNTA) common stock will receive 0.1 shares of the Series A CommerceHub common stock and 0.2 shares of Series C CommerceHub for each share held. Series B (LVNTB) shareholders will receive 0.1 shares of Series B CommerceHub shares and 0.2 shares of Series C CommerceHub shares for each share owned.
 

CommerceHub Series A and C shares will trade on the NASDAQ under the symbols “CHUBA”, and “CHUBK”, respectively. Series B shares will trade OTC under the symbol “CHUBB”. CommerceHub shares will begin trading regular way on July 25, 2016 absent any further delays in the SEC filing review. Following the spin-off of CommerceHub, Liberty Ventures will separate its holdings in Expedia Inc. and Bodybuilding.com into a standalone company to be named Liberty Expedia Holdings Inc. The Liberty Expedia distribution is now planned to be completed via a split-off, allowing shareholders the option of exchanging Ventures shares for shares of Liberty Expedia. The distribution date for Liberty Expedia has not yet been determined.
 

CommerceHub is a cloud-based e-commerce fulfillment and marketing software platform of integrated supply, demand and delivery solutions for large retailers, online marketplaces and digital marketing channels, as well as consumer brands, manufacturers, distributors and other market participants. CommerceHub’s software essentially creates a virtual hub that facilitates e-commerce transactions in the consumer and business-to-business markets.
 

Post-spin, CommerceHub will be a far smaller entity than Liberty Expedia and Liberty Ventures, in terms of market capitalization. Additionally, the company will have far fewer shares outstanding as compared to the other two entities. The combination of these factors should make the post-spin entity less attractive to major institutional investors and may result in share price volatility during early trading.
 

Interestingly, CommerceHub will introduce a C class of shares in the distribution. Management has noted that one reason for transferring CommerceHub into a standalone entity is so that the company can use its own equity as currency to potentially grow via acquisition. The C shares would likely be used in that scenario, similarly to how C class shares have been used in other Liberty-related entities. On a recent earnings conference call, management stated that “it’s not inconceivable that this company could be part of a larger enterprise,” suggesting the potential for it to be acquired more easily following the spin given “a very, very, very low tax basis inside” the current structure.
 

CommerceHub is fairly valued at $15 per share when accounting for $21 million in net debt and 42.6 million shares outstanding and valuing the shares at a discount to peers. If the shares were to be awarded a multiple toward the low end of the peer range, CommerceHub could be valued at $21 per share, although this scenario would probably materialize only in a potential takeout situation.
 

On a pre-spin, sum-of-the-parts basis, shares of Liberty Ventures are fairly valued at $45 per share, consisting of $17 per share value from Liberty Expedia Holdings, $5 per share from CommerceHub, and $23 per share from the remainder of Liberty Ventures’ public and private holdings. Previously shares were valued at $43 per share; the fair value increase is due to the increase in value of the underlying public holdings. The fair value estimate represents 18% potential upside from the current share price of $38.44. When incorporating optionality on Liberty Expedia and Ventures post-spin, upside to the fair value exists to $57 per share on a pre-spin basis. Given the current discount to estimated NAV, combined with optionality from appreciation potential for the underlying holdings of Liberty Ventures, Ventures shares are recommended for purchase prior to the separation of Liberty Expedia and CommerceHub.
 

Notably, following the spin-off of CommerceHub, the public and private holdings that will remain with Ventures can be assigned a NAV of $41 per share, a 6% premium to the current share price. Pre-spin LVNTA owners could view the CommerceHub distribution as a free dividend. For further information, please see the Liberty Ventures Spin-Off Report dated June 13, 2016.

On June 28th, Old Mutual Plc (Ticker: OML LN, Market Capitalization: GPB 9,080 million—US$6,826 million) announced that, as part of the broad restructuring of its operations, it intends to demerge and distribute to its shareholders its wealth management unit. The new entity will be listed in the UK and South Africa, and should be separated by year-end 2018.
 

Old Mutual Plc is a British financial services corporation with significant presence in Sub-Saharan Africa, primarily South Africa. It operates under four divisions: Old Mutual Emerging Markets (OMEM), Old Mutual Wealth (OMW), Nedbank (NED SJ) and OM Asset Management (OMAM US). The latter two companies are already publicly-traded, with Old Mutual controlling 54 percent and 65.8 percent of the shares, respectively. In a process to simplify its business structure and unlock shareholder value, Old Mutual announced on March 11, 2016, a restructuring program that includes the separation of the four business. As a result, the company was added to The Global Spin-Off Radar Screen in April 2016.
 

Old Mutual Emerging Markets is a financial services firm offering insurance, asset management and banking products in South Africa, Namibia and Zimbabwe. Old Mutual Wealth offers wealth management and insurance services in the UK. Nedbank is one of South Africa’s largest lenders, while OM Asset Management offers institutional investment management services.
 

This will be a multi-year process that is expected to be completed by 2018. While the plan with regard to every subsidiary is not yet concrete—and even the announced decisions are subject to change—it is expected that Old Mutual will create a new South African holding company that houses OMEM as well as the NED and OMAM shareholdings. This new unit will distribute most of the Nedbank shares to its shareholders, significantly reducing Old Mutual’s ownership. At the same time, Old Mutual intends to sell its interest in OMAM in an orderly fashion, using the proceeds to pay down holding company level debt. As a result, Old Mutual shareholders will end up owning shares in Old Mutual Wealth—the newly created entity, Nedbank and the new Old Mutual that will comprise Old Mutual Emerging Markets’ operations.
 

This breakup plan has been long awaited by its investors. Old Mutual’s four businesses operate in very different markets, have disparate operating models and strategies, are subject to different regulations and generate no synergies. To the contrary, the company’s current business structure—akin to a holding company—has led to significant central costs, estimated by Old Mutual at GBP 80 million per year. Indeed, for 2015, total adjusted operating profit (AOP) after taxes and non-controlling interests from the four business amounted to GBP 1,070 million. That is, excluding holding company expenses that reduced AOP by GBP 139 million.
 

Valuing Nedbank and OMAM based on their market capitalization and OMW and OMEM based on peer price-to-earnings multiples, we arrive at a sum-of-the-parts valuation, prior to holding company expenses, of GBP 12,266 million. Capitalizing these expenses at 10 percent—Old Mutual’s current earnings yield—we arrive at an equity value of GBP 10,911 million.

On June 28, 2016, after the market close, Liberty Interactive (NASDAQ: QVCA, QVCB, LVNTA, LVNTB) announced the distribution dates for the spin-off of CommerceHub Inc. Shares of CommerceHub will be distributed on July 13, 2016 to Liberty Ventures (LVNTA, LVNTB ) shareholders of record as of July 8, 2016. In the spin-off of CommerceHub, shareholders of Series A Liberty Ventures (LVNTA) common stock will receive 0.1 shares of the Series A CommerceHub common stock and 0.2 shares of Series C CommerceHub for each share held. Series B (LVNTB) shareholders will receive 0.1 shares of Series B CommerceHub shares and 0.2 shares of Series C CommerceHub shares for each share owned. CommerceHub Series A and C shares will trade on the NASDAQ under the symbols “CHUBA”, and “CHUBK”, respectively. Series B shares will trade OTC under the symbol “CHUBB”. CommerceHub shares will begin trading regular way on July 14, 2016. Following the spin-off of CommerceHub, Liberty Ventures will spin-off its holdings in Expedia Inc. and Bodybuilding.com into a separate company to be named Liberty Expedia Holdings Inc. The distribution date for Liberty Expedia has not yet been determined.

CommerceHub is a cloud-based e-commerce fulfillment and marketing software platform of integrated supply, demand and delivery solutions for large retailers, online marketplaces and digital marketing channels, as well as consumer brands, manufacturers, distributors and other market participants. CommerceHub’s software essentially creates a virtual hub that facilitates e-commerce transactions in the consumer and business-to-business markets.

CommerceHub will be a far smaller entity than Liberty Expedia and Liberty Ventures post-spin in terms of market capitalization. Additionally, the company will have far fewer shares outstanding than the other two entities. The combination of these factors should make the post-spin entity less attractive to major institutional investors and may result in share price volatility in early trading.

Interestingly, CommerceHub will introduce a C class of shares in the distribution. Management has noted that one reason for transferring CommerceHub into a standalone entity is so that the company can use its own equity as currency to potentially grow via acquisition. The C shares would likely be used in that scenario, similarly to how C class shares have been used in other Liberty-related entities. On a recent earnings conference call, management stated that “it’s not inconceivable that this company could be part of a larger enterprise,” suggesting the potential for it to be acquired more easily following the spin given “a very, very, very low tax basis inside” the current structure.

CommerceHub is fairly valued at $15 per share when accounting for $21 million in net debt and 42.6 million shares outstanding and valuing the shares at a discount to peers. If the shares were to be awarded a multiple toward the low end of the peer range, CommerceHub could be valued at $21 per share, although this scenario would probably materialize only in a potential takeout situation.

On a pre-spin, sum-of-the-parts basis, shares of Liberty Ventures are fairly valued at $42 per share, consisting of $16 per share value from Liberty Expedia Holdings, $5 per share from CommerceHub, and $21 per share from the remainder of Liberty Ventures’ public and private holdings. The fair value estimate represents 17% potential upside from the current share price of $36. When incorporating optionality on Liberty Expedia and Ventures post-spin, upside to the fair value exists to $57 per share on a pre-spin basis. Given the current discount to estimated NAV, combined with optionality from appreciation potential for the underlying holdings of Liberty Ventures, Ventures shares are recommended for purchase prior to the separation of Liberty Expedia and CommerceHub. For further information, please see the Liberty Ventures Spin-Off Report dated June 13, 2016.

On June 21, 2016, NeuStar, Inc. (NYSE: NSR) announced that it intends to separate its Order Management and Numbering Services Business from its Marketing, Security, and Related Data Services business via a tax-free distribution of shares. The spin-off is planned to be completed in the next twelve months, subject to receipt of a favorable tax opinion, the effectiveness of a Form 10 registration statement, and potential regulatory approvals as the company evaluates the preferred transaction structure.

NeuStar, based in Sterling, Virginia, has historically generated over $3 billion in revenues as the LNPA (Local Number Portability Administrator) for U.S. telephone companies since 1997. This service accounted for 50 percent, 49 percent and 49 percent of NeuStar’s revenue in 2012, 2013 and 2014, respectively. However, in March 2015, NeuStar lost its LNPA contract, as the Federal Communications Commission reassigned the five-year contract to Ericsson AB (ERICB SS), which operates the Telcordia business. With the loss of its most important contract, it is imperative for NeuStar to quickly expand its addressable market. Accordingly, late 2015, NeuStar made two acquisitions in an attempt to further its strategy of entering into a rapidly growing and vast (albeit highly competitive) $19 billion Information Services market, which includes marketing and data security services. The first acquisition, the caller identification assets of Transaction Network Services (TNS), is a business expected to generate approximately $60 million in revenue in 2016. The second, a costly acquisition, was that of MarketShare Partners, LLC, a marketing analytics company that generated approximately $57 million in TTM revenues, at a valuation of 6.8x TTM sales. It remains to be seen whether NeuStar can successful capture meaningful share in these businesses amidst larger and more established competitors with considerable data analytics and security expertise.

The post-spin Order Management & Numbering Services company, which will retain the NeuStar name and brand identity, is a leader in service fulfillment solutions for communications service providers, providing services to wireline, wireless and cable communications providers, as well as to social media and messaging platforms. The post-spin entity will build upon its industry leadership in Order & Inventory Management and complex real-time Numbering Services as the communications industry migrates to cloud-based networks and virtualized service architectures. The company will provide LNPA services and Order & Inventory Management solutions that enable communications service providers to exchange Ordering & Numbering information with other providers to support the provisioning of subscribers, services, networks and devices This business generated $580 million in revenues in 2015, with a compounded annual growth rate of 8% over the past four years, including acquisitions. NPAC (Number Portability Administration Contract) fixed fee revenue will continue to generate approximately $496 million annually through the duration of the contract.

The post-spin Information Services company will focus on client demand for Marketing, Security and related Data Services, and provide Marketing Services, including Customer Intelligence, Activation and Measurement & Attribution; Security Services, including DNS (Denial of Service) Services, DDoS (Distributed Denial of Service) Protection and Domain Name Registries. Revenues from this business increased to $470 million in 2015, with a compounded annual growth rate of 25% over the past four years including acquisitions. This company is expected to be re-branded, allowing it to establish an independent identity and reputation, and will not rely on any data derived from the company’s Order Management & Numbering Services activities, or NPAC Services.

Comparables for the post-spin Information Services company include larger players in the marketing, security, and data services arenas. This peer group trades, on average, at 4.0x 2017 consensus revenue. Based on annual revenue of $470 million, the Information Services company would be valued at $1.9 billion. It should be noted that the peer group used includes far larger players with more established brand names and businesses such as Acxiom Corp. (NASDAQ: ACXM), Oracle Corp (NYSE: ORCL), Akamai Technologies Inc. (NASDAQ: AKAM), amongst others. Given NSR’s recent entry into these markets, and limited relative market share, valuing the Information systems company in line with this peer group may prove aggressive if the company is not able to capture market share outside of conducting expensive acquisitions.

Post spin NSR’s profitability is largely tied to the remaining LNPA contract, which is expected to expire in about 18 months, over which time cash flow from the contract is expected to be returned to shareholders. Based on management commentary of annual revenue, an estimated 70% EBITDA margin, and annual capital expenditures of $55 million, the remaining LNPA contract would generate $438 million in free cash flow over the next 18 months, or $380 million when discounted at 10%. Revenue outside of the LNPA contract totals $84 million, which could be expected to trade at a similar multiple to the current NSR multiple of approximately 2.0x, resulting in $168 million in value.

On a sum-of-the-parts basis, this preliminary valuation exercise results in a pre-spin fair value estimate of $26 per share when accounting for $1 billion in net debt and 54.4 million shares outstanding. Given limited upside from the current share price ($25 per share pre-market), and the risks associated with the lost LNPA contract and entry into new business lines, shares of NSR are not recommended at this time.

On June 15th, Crown Resorts Ltd (Ticker: CWN AU, Market Capitalization: A$8,202 million—US$6,076 million), an Australian gaming and leisure firm, announced a broad reorganization of its structure that includes the spin-off of the majority of its international investments into a separate entity whose shares will be distributed on a pro rata basis to its existing shareholders. The spin-off is subject to final Board and shareholder approval as well as approvals from various regulatory bodies, including government entities. No timeline for the transaction has been provided.

Crown Resorts’ primary non-Australian asset is its 27.4 percent interest in publicly-traded Melco Crown Entertainment Ltd. Melco Crown is a casino operator in Macau, the former Portuguese colony that has undergone a gaming renaissance during the past decade due to its privilege as the only region within the broader Peoples Republic of China where gambling is legal. An influx of Chinese tourists transformed this Special Administrative Region into the world’s largest gambling market. However, a crackdown on corruption in China over the past couple of years has resulted in a significant decline in the number of visitors from the Chinese Mainland, and a subsequent reduction in revenues and profits for Macau’s casinos.

Melco Crown’s stock price has declined by two-thirds compared to its 2014 peak. During the same timeframe, and despite its stable and highly profitable Australian operations, Crown Resorts has also lost one-third of its market value. The proposed spin-off is the Board’s response to what it perceives as a persistent undervaluation of Crown Resorts and a misguided correlation to Melco Crown’s stock price.

The company’s Board has also decided to increase its dividend payout ratio to approximately 100 percent of normalized net income, effective immediately, and explore the separation of its Australian hotel portfolio—excluding Crown Towers Melbourne—into a publicly listed REIT. If that demerger proceeds, it is the company’s intention to sell 49 percent of the REIT through an IPO. These actions follow the May 2016 sale of a 6.9 percent stake in Melco Crown for US$800 million.

Following the spin-off, the parent company will comprise the businesses of Crown Melbourne, Crown Perth and Crown Sydney1—the “Australian Resorts”, Crown Aspinalls—a high-end casino in London, and its wagering and online social gaming operations. In addition to the existing hotels and casinos, Crown Resorts is in the process of expanding its property portfolio. Its Crown Towers in Perth are on track for a December 2016 opening. The towers will have 500 luxury hotel rooms and other high-end amenities. In Sydney, the company is in the early stages of design and approval for the Crown Sydney Hotel Resort, a six star resort with 350 rooms, high-end amenities and gaming facilities. Lastly, it is considering the development of the Queensbridge Hotel Tower that will add 388 rooms and 650 apartments to its Crown Melbourne resort.

Trailing-twelve-months EBITDA for the parent company operations2 is A$799 million. Based on the 14.6x average enterprise value-to-EBITDA multiple of the company’s peers, the parent company’s earnings-based enterprise value is estimated at A$11,680 million. Furthermore, the company has already spent A$450 million towards to construction of the Crown Towers, which, included in the valuation, leads to an enterprise value of A$12,130 million.

The InternationalCo will comprise the company’s 27.4 percent interest in Melco Crown, a 20 percent stake in Nobu, a 50 percent interest in the Aspers Group—an operator of four casinos in the UK—and a development site in Las Vegas, where the company intends to develop its Alon Las Vegas Resort. With the exception of the equity stake in Melco Crown, the remaining subsidiaries within the spun off entity have little value: Alon Las Vegas is a very early-stage development. The stake in Nobu was acquired over the past year for a consideration of US$100 million. The value of Aspers Group has been written down to zero due to its persistent losses. Consequently, the NAV of InternationalCo can be simply calculated based on Melco Crown’s market capitalization—US$1,990 million at Crown Resort’s stake—and the cost basis of its Nobu investment. The aggregate spinco valuation is US$2,090 million (A$2,830 million).

The combined enterprise value of the two entities stands at A$14,960 million. Crown Resorts’ net debt, as of December 31st 2015, stood at A$2,950 million. Additionally, in May 2015, the company sold a portion of its Melco Crown interest back to the casino operator, reducing its ownership from 34.3 percent to the current 27.4 percent. The shares were sold for US$15.5 each, for a total consideration of US$800 million. Based on the investment’s cost basis and Australia’s corporate tax rate, Crown Resorts’ after-tax cash inflow should be A$875 million. Therefore, the resulting equity value for the pre spin-off entity is A$12,880 million, or A$17.7 per share.

VVI reaffirms 2016 and longer-term financial guidance; we think a clear framework exists for the eventual separation of the M&E and T&R businesses; fair value maintained at $38 per share.

• At the June 15th investor day, VVI reaffirmed 2016 and longer-term financial guidance, which supports our current outlook.
• For 2016, VVI expects mid to high single digit revenue growth with EBITDA margins of 7%-7.5% at M&E and ~25% top-line growth with an EBTIDA margin of ~32% at T&R.
• Longer-term, VVI projects compound annual sales growth in the low to mid-single digits through 2019 with an ~8% margin (excluding the benefits of positive show rotation) at M&E and endeavors to essentially double the revenue base at T&R to $250 million while maintaining a margin profile ≥ 32%.
• In our view, management is clearly open to an eventual separation of its disparate businesses but we think today’s event anecdotally pointed toward the framework that management views as necessary for the two businesses to successfully standalone (and maximize shareholder value).
• In our view, the achievement of a $250 million revenue base at T&R, which VVI called “optimal”, stands out as the starkest benchmark while at M&E it seems less about size than a more stable business mix, which would seemingly include ~$250 million of high-margin A/V & event technology work and as well as an increased contribution from non-exhibition/corporate events, that is conducive to the maintenance of a higher than historical margin profile through the course of a cycle.
• For T&R, acquisitions at iconic natural & cultural destinations with perennial demand will remain integral to VVI’s growth plans over the next several years; to that end, VVI currently has $200 million-plus of available financial capacity and management indicates the pipeline of deals is “really good”.
• Our base case sum-of-the-parts fair value for VVI remains $38 per share (with bull & bear cases of $47 & $29).

On June 6, 2016, Hertz Global Holdings Inc. (NYSE: HTZ) announced that the company’s Board of Directors has formally approved the separation of its equipment rental business from its car rental operations. The separation will occur via a tax-free distribution of shares in Hertz Rental Car Holding Co. (New Hertz) on June 30, 2016. HTZ shareholders of record as of June 22, 2016 will receive one share of New Hertz for every five shares of HTZ owned. Following the distribution the parent company will adopt the corporate moniker Herc Holdings and will enact a 1-for-15 reverse stock split. Regular-way trading for New Hertz and Herc Holdings will begin on July 1, 2016, with New Hertz remaining under the “HTZ” ticker. Herc Holdings will trade on the NYSE under the symbol “HRI”. When-issued trading is expected to begin on June 20, 2016, two days prior to the record date.

HTZ operates its car rental business under four brands: Hertz, Dollar, Thrifty, and Firefly, each of which provides differing levels of service and products at different price points. The company also offers Hertz 24/7, a car-sharing service through which customers rent cars from various locations by the hour or day. The company has 1,635 airport locations within the U.S. and 1,320 internationally. Off-airport locations total 2,800 and 4,225 in the U.S. and internationally, respectively.

While increased air travel and business spending historically have been positives for the rental car industry, new disruptive entrants into the market may slow the expected growth for New Hertz. Technology-focused taxi-like and ride-sharing applications such as Uber and Lyft may be siphoning demand away from the traditional rental car model. Supporting the notion that the rental car industry may be under pressure, on April 11, 2016, HTZ pre-announced disappointing 1Q 2016 earnings, while affirming guidance for full year 2016 consolidated EBITDA of $1.6-$1.7 billion (including HERC). The lower 1Q results were attributed to “excess industry capacity”. On the positive side, in the same release the company reiterated its goal of achieving $350 million of incremental savings in 2016, which should allow for margin expansion despite a challenging revenue environment.

The post-spin fair value estimate for HTZ has been revised to reflect the finalized capital structure and an increased multiple reflecting share price appreciation among peers since the initial publication. Based on 2017 estimated EBITDA of slightly over $1 billion, post-spin New Hertz can be fairly valued at $47 per share when incorporating the company’s 1.7% stake in CAR Inc. (699 HK) (worth $0.31 per share of HTZ), a $1.9 billion payment from HERC and the planned 1:5 share distribution. The 6.8x multiple used is in line with peer Avis Budget Group Inc. (NASDAQ: CAR).

Hertz’s equipment rental business (HERC) generates revenue from the rental of equipment, primarily in North America. HERC offers equipment rental, equipment re-rental, sale of used rental equipment, sales of new equipment, parts & supplies, and service & support. Equipment rental uses include aerial (bucket trucks, boom lifts, etc.), earth-moving, and material handling, among a variety of other purposes. In 2015, the company generated $1.7 billion in revenue and $601 million in EBITDA.

The equipment rental industry appears to be in better shape than the rental car industry. Following declines in equipment rental revenue due to the Great Recession of 2008, the industry has returned to growth, experiencing positive percentage increases over the past four years. Management expects the equipment rental industry to grow at a 5.8% CAGR through 2019. Given a return to growth, the industry has also continued a trend of consolidation. For its part, HERC has executed 11 acquisitions since 2009 in a variety of specialty rental markets that have broadened its industrial market exposure and allowed the company to expand into adjacent end-markets.

Herc’s fair value estimate has been revised to reflect a finalized capital structure and the 1-for-15 reverse stock split that will occur immediately following the distribution of New Hertz. Based on multiples of estimated EBITDA, assets, and book value, shares of HERC are assigned a fair value estimate of $45 per share.

On a sum-of-the-parts basis, pre-spin, shares of HTZ have a fair value estimate of $12 per share, consisting of $2.98 for Herc and $9.47 for New Hertz. The pre-spin fair value estimate represents approximately 18% upside from the current share price ($10.56 per share as of this writing), as such shares are recommended for purchase prior to the spin-off.

Following the spin, we favor the equipment rental business, as HERC’s large industry presence and macro tailwinds (e.g. increasing levels of construction) should aid the company in growing its earnings and cash flow, as well as allowing for debt retirement and/or acquisitions. Separately, over a longer time frame, it is not unreasonable to assume that a larger competitor may be interested in HERC’s assets.

On June 1, 2016, Danaher Corporation (NYSE: DHR) announced key dates associated with the spin-off of Fortive Corporation, which comprises the company’s Test & Measurement and Industrial Technologies segments (excluding the Product Identification platform) and Retail/Commercial Petroleum platform. The distribution of Fortive shares will take place on July 2, 2016, to DHR shareholders of record as of the close of business on June 15, 2016, the record date for the spin off. Danaher stockholders will receive one share of Fortive common stock for every two shares of Danaher common stock held on the record date.

“When-issued” trading of Fortive common stock will begin on June 13, 2016, on the NYSE, under the symbol “FTV WI.” “Regular-way” trading of Fortive common stock is expected to begin on NYSE on July 5, 2016, under the symbol “FTV.” Shares of Danaher common stock will continue to trade “regular way” on the NYSE under the symbol “DHR” through and after the Distribution Date.
The spin entity, Fortive Corporation, is a diversified industrial growth company, consisting primarily of Danaher’s industrial automation and test & measurement businesses, generating approximately $6 billion in revenue in 2015, representing a 2.5% year-over-year decline. Fortive is being spun off with lower balance sheet leverage than Danaher in order to support the company’s merger and acquisition strategy.

Danaher is characterized by a well-defined business strategy and efficient operating philosophy rooted in a proprietary, standardized continuous-improvement culture instituted by its founders, Steven and Mitchell Rales. Danaher has a long history of highly successful, diversified acquisitions, but more recently has been looking to consolidate its Life Sciences business, which represented approximately 40% of 2015 revenue.

Danaher completed or announced 18 acquisitions in 2014 for a total consideration of about $4 billion. This trend is likely to continue (and possibly accelerate) in 2016 and beyond, as some market observers speculate that Danaher is pursuing both larger and more numerous merger and acquisition transactions, with an emphasis on less cyclical end-markets with more consistent earnings growth and on business models characterized by high-margin, recurring revenue streams. In this context, a spin-off of a more volatile industrial business makes sense.

The pre-spin sum-of-the-parts fair value estimate for DHR remains unchanged at $104. Post-spin, DHR and FTV can be fairly valued at $81 and $45, respectively. With the pre-spin fair value estimate approximating DHR’s current share price ($98.64 as of this writing), the shares appear to be fully valued for the transaction. As such, the pre-spin shares are not recommended for purchase. Note that the subdued sales outlook for Fortive will likely keep a cap on the valuation in the near term. That said, the company’s net debt to EBITDA leverage of approximately 2.7x (approximately $3 billion in debt), strong free cash flow, and ability to lever up for the right strategic acquisition transaction should enable Fortive to redeploy capital for acquisitions over the coming year. An accelerated acquisition pace would likely be positively received by investors as a growth strategy, and would probably provide better visibility into 2017 earnings growth. Over the next 12 months, the ensuing shift of Danaher’s investor base from an industrial bias to more of a healthcare and life sciences focus also supports the case for multiple expansion. In addition, the company should be positively impacted by an improving economy while also benefiting from its defensiveness in a tougher market, a function of its non-organic growth opportunities and less exposure to cyclical healthcare-related businesses. For more details, please refer to The Spin Off Report dated May 26, 2016.

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).