On February 11, 2016, The Manitowoc Company, Inc. (NYSE: MTW) announced that the company’s Board of Directors has approved the previously announced plan to separate its Foodservice segment, which will be spun off as Manitowoc Foodservice, Inc. (“MFS”). Manitowoc shareholders will receive one share of MFS common stock for every one share of MTW common stock held as of the close of business on February 22, 2016, the record date for the distribution. When issued trading is expected to begin on February 18, 2016. Shares of Manitowoc Foodservice, Inc. common stock will trade on the New York Stock Exchange (“NYSE”) under the ticker symbol “MFS-WI”. When issued shares of MTW will trade under the symbol “MTW-WI.” The Board has set a distribution date of March 4, 2016. Following the spin-off, Manitowoc Foodservice, Inc. will trade on the NYSE under the ticker symbol “MFS.”

As background, Manitowoc is a multi-industry capital goods manufacturer operating under two main segments—Cranes and related products (59% of 2014 sales, FY ending December) and Foodservice equipment (41% of 2014 sales). The Cranes business, which reported annual revenue of $2.3 billion in the 12 months ended December 31, 2014, is one of the largest providers of lifting equipment for the global construction industry. The Foodservice business, which reported annual revenue of $1.6 billion in the 12 months ended December 31, 2014 ($1.2 billion for the first nine months of 2015), is a leading manufacturer of commercial foodservice equipment serving the ice, beverage, refrigeration, food prep, and cooking needs of restaurants, convenience stores, hotels, hospitals, and other institutions.

The transaction is the culmination of mounting pressure from activist investors, who have for some time suggested a separation of these two disparate (and underperforming) businesses. The Foodservice segment has suffered adverse product mix and poor execution, as MTW’s consolidation and restructuring actions resulted in weaker profitability in 2014 and into 2015, from originally targeted operating margins of 17.5% to 12.9% in the most recently reported quarter (3Q 2015). Similarly, a demand recovery in the Cranes sector has been elusive, owing primarily to weak demand for rough terrain and boom trucks in North America and weak recovery of non-residential construction markets (particularly utility power plants).

Our fair value estimates have been adjusted to reflect updated capitalization information for MFS, which includes $1,400 million in debt (consisting of a $975 million senior secured term loan B facility and $425 million of senior notes due 2024), as well as updated information on post-spin cash proceeds to MTW. MFS will distribute $1,388 million in proceeds from the debt issuance to MTW in the form of a cash dividend. Accordingly, our pre-spin sum of the parts fair value estimate has been revised to $15.22 (from $15.28 previously), comprising $6.84 and $8.38 for MTW and MFS, respectively (from $2.72 and $12.55 respectively). The pre-spin fair value estimate implies approximately 9% upside to the shares’ current price ($14.02 as of this writing). Given the limited upside, pre-spin shares are not recommended for purchase. We expect shares of post-spin MTW to experience near-term selling pressure, owing to concerns over the long-term viability of this business as a separate entity given weak order growth (down 39% year-over-year in the most recently reported quarter), deteriorating margins, and weakening global end markets.

On February 10th, Norwegian shipping company Wilh Wilhelmsen ASA (Ticker: WWASA NO, Market Capitalization: NOK 6.98 billion—USD 0.81 billion) announced its plan to demerge Den Norske Amerikalinje AS into a separate publicly-listed entity that will be named Treasure ASA. The transaction is subject to customary conditions, including shareholder approval. It is expected that an extraordinary general meeting to vote on the spin-off will take place in April 2016, with the transaction being completed by May or June of this year.

Den Norske Amerikalinje AS is a company owning a 12 percent stake in Korean logistics corporation Hyundai Glovis Co Ltd (086280 KS). The spin-off of a “shell” company, in a manner similar to Yahoo! Inc’s attempt to divest its shareholding in Alibaba Group Holding Ltd, will allow the parent company to focus on its core activities, while improving transparency, simplifying Wilh Wilhelmsen’s structure and shedding light in the company’s fundamental value.

Hyundai Glovis has a market capitalization of KRW 7.6 trillion, or USD 6.3 billion. Therefore, Treasure’s 12 percent stake is valued at USD 760 million, with the spin entity’s market capitalization depending on the amount of net debt Wilh Wilhelmsen decides to allocate to it. However, it is expected that Treasure, as a shell company, will be assigned a heavy discount. Using a 20 percent holding company discount, Treasure’s
value is reduced to USD 610 million.

The parent company comprises two segments: shipping and logistics. Wilh Wilhelmsen’s shipping operations include the ownership and operation of ro-ro and car carriers (i.e., vessels used to transport cars and other rolling cargo vehicles such as trucks). Wilh Wilhelmsen’s operations are primarily conducted through its joint ventures Wallenius Wilhelmsen Logistics, EUKOR Car Carriers and American Roll-on Roll-off Carriers. Together, the companies control approximately a quarter of the global car carrier fleet.

The shipping group’s clientele includes automobile manufacturers, governments and industrial companies. Vessels typically operate on a contract of affreightment basis, which entails mutli-year contracts that provide for a fixed price per unit carried—but not a fixed volume of cargo. The segment’s 2015 EBITDA, excluding the impact of one-time items, should be approximately USD 350 million. Due to the more stable nature of car carriers’ operations, Wilh Wilhmesen can be valued against a peer of container liner companies, such as A.P. Moeller-Maersk A/S. The median enterprise value-to-EBITDA for such companies is 8.5x. However, because of a deteriorating environment, and the fact that multiples are stretched due to low earnings, it is prudent to use a multiple closer to the low-end of the peer group. Consequently, based on an enterprise value-to-EBITDA multiple of 6.5x, the division is valued at USD 2,275 million.

Wilh Wilhelmsen’s logistics operations are conducted through joint ventures such as Walleniun Wilhelmsen Logistics. These subsidiaries offer terminal services, technical services, inland distribution and supply chain management. Excluding Hyundai Glovis, which is the company’s most valuable logistics asset, the logistics division generated an estimated EBITDA of USD 71 million in 2015. Global logistics companies trade at an average enterprise value-to-EBITDA of 9.4x. Based on that multiple, Wilh Wilhelmsen’s logistics segment is valued at USD 255 million.

The resulting sum-of-the-parts enterprise value is USD 3,135 million. Incorporating USD 1,415 million in net debt—including the company’ share in joint venture debt—Wilh Wilhelmsen’s equity valuation is USD 1,720 million, or NOK 76 per share.

On January 29, 2016, Xerox Corporation (NYSE: XRX) announced its plans to separate its Document Technology (hardware) and Business Process Outsourcing (BPO) services businesses via a tax-free spin- off to shareholders. The company plans to compete the separation by year-end, subject to customary closing conditions, receipt of regulatory approvals, tax considerations, securing any necessary financing, and final approval of the Xerox Board. As part of its ongoing restructuring, Xerox also announced a three-year strategic transformation program targeting a cumulative $2.4 billion savings across all segments. The company expects $700 million in annualized savings in 2016.

The spin-off appears to be the culmination of mounting activist pressure from Carl Icahn, who, in November 2015 acquired an additional 7.1 percent stake in the company and argued it was ‘undervalued,’ causing Xerox to announce a capital allocation review that same month. Icahn is currently Xerox’s second largest shareholder, at over 74.1 million shares (8.13% outstanding). In conjunction with the spin-off, Xerox announced governance provisions for the post-spin BPO company, which will include a Board of Directors composed of nine members, three of which will be selected by Icahn. XRX also agreed that a committee of its Board of Directors will begin searching for an external candidate to be Chief Executive Officer of the BPO company and to allow a person selected by Icahn to observe and advise the committee in that search process.

Xerox Corporation offers business process and IT outsourcing support services, employing over 147,000 employees worldwide and generating 2015 (FY Dec) sales of $18,045 million. The spin-off should increase strategic and operational focus for both companies. Notably, Xerox sold its IT-outsourcing business to digital services company Atos SE (ATO FP) in June 2015, signaling increased focus on its BPO and Document Outsourcing (DO) businesses, where it has more of a competitive advantage.

Notably, the transaction also parallels that of Hewlett-Packard Company, which in November 2015, spun off its enterprise networking business, Hewlett Packard Enterprise (NYSE: HPE), from its legacy printing business, HP, Inc. (NYSE: HPQ), which was facing digital competition HPQ shares have seen pressure in the initial months of trading as a standalone company, while the more growth oriented business of HPE has fared better. For more details, please refer to The Spin-Off Report dated August 12, 2015.

Xerox, like HP, appears to be employing a similar strategy of separating its declining legacy business. As enterprises increasingly perform back-office tasks electronically, rather than on paper, Xerox’s Document Technology business, which generated 2015 sales of approximately $7.4 billion, is in the midst of a secular decline. There appears to be more potential for valuation upside in the BPO company, which generated approximately $10.3 billion in 2015 revenue, more than 90% of which is annuity-based. The company offers global services ranging from claims reimbursement and electronic toll transactions to the management of Human Resources (HR) benefits, and serves multiple end markets, including transportation, healthcare, commercial and government services. BPO has been viewed by investors as a relatively recurring and underpenetrated business model, given that the majority of revenue comes from long term customer contracts. Consequently, BPO firms generally trade at higher multiples than many IT hardware firms. Ultimately, the post-spin BPO services company could become an acquisition target, particularly for a higher-margin services competitor such as Accenture Plc. (NYSE: ACN).

As a base line for valuing the post-spin Document Technology company, 2016 revenue can be forecast to decline 5% from the 2015 level of $7.4 billion. The revenue decline is a slight improvement from the 2015 decline of 8% (constant currency). Assuming a 15% EBITDA margin, roughly in line with historical levels, results in a 2016 EBITDA estimate of $1.1 billion. Peers to the post-spin Document Technology peers include hardware companies, including Lexmark (NYSE: LXK), Electronics for Imaging, Inc. (OTC: EFII) and Pitney Bowes, Inc. (NYSE: PBI), among others, that trade at about 6.5x 2016 EBITDA estimates. Applying a 6.5x multiple to estimated post-spin EBITDA derives an enterprise value of $6.8 billion.

The post-spin BPO company will have 2016 revenue of approximately $10.8 billion and generate EBITDA of $1.3 billion based on flat revenue and margins from 2015. Peers to the post-spin BPO services company include customer management services companies such as Convergys Corp, (NYSE: CVG) Amdocs Limited (NASDAQ: DOX), and Sykes Enterprises, Inc. (NASDAQ: SYKE), which trade at about 7.5x 2016 EBITDA estimates. Applying a 7.5x multiple to estimated post-spin EBITDA derives an enterprise value of $9.7 billion.

Based on the above exercise, and incorporating $6.4 billion in net debt and one billion in shares outstanding, pre-spin XRX can be fairly valued at $10 per share, representing a 9% premium to initial trading following this morning’s announcement ($9.23 as of this writing). It should be noted that this preliminary valuation exercise does not factor in meaningful benefits from the planned cost savings or the approximate $2.6 billion underfunded pension plan (as of December 2014).

• Media General (NYSE: MEG) has signed a definitive agreement to be acquired by Nexstar Broadcasting Group (NASDAQ: NXST) for $10.55 per share in cash and 0.1249 of NXST stock or $17.14 per share. MEG shareholders will also receive contingent value rights (CVR) entitling them to share in potential proceeds from the Federal Communication Commission’s (FCC) upcoming spectrum auction. By our calculation the purchase price, ex-CVRs, is roughly 9.9x blended 2015/2016 EBITDA.

• As such, the previously announced merger agreement between MEG and Meredith Corp. (NYSE: MDP) has been terminated. Consequently, MDP will receive the $60 million termination fee as well as the opportunity to bid on certain broadcast and digital assets that will be divested by the combined NXST/MEG entity to meet regulatory requirements.

• As a result of this development, we will cease coverage of Media General, which returned about 20% since our initial publication on 9/29/2015 versus a 1% rise in the S&P 500, as of the close 1/27/2016 but continue to publish on the standalone Meredith Corp., which will remain among the few diversified media concerns in the publicly-traded market.

• It remains our contention that durable industry trends toward both consolidation as well as the separation of broadcasting and publishing assets suggests upside on a sum of the parts basis from MDP’s current ~$40 stock price.

• Our $50 fair value ascribes $44 per share of value to MDP’s Broadcasting business assuming a 9.5x multiple and $22 per share to the company’s publishing assets at a 6.5x multiple.

On January 12, 2016, W.R. Grace & Co. (NYSE: GRA) announced that the company’s Board of Directors has approved the previously announced plan to separate Grace’s Construction Products segment and Darex Packaging Technologies business from the remaining businesses of Grace to form GCP Applied Technologies (“”GCP””). The planned spin-off is expected to be completed on February 3, 2016 with regular way trading to begin on Thursday, February 4, 2016.

Grace shareholders will receive one share of GCP common stock for every one share of Grace common stock held as of the close of business on January 27, 2016, the record date for the distribution. When issued trading is expected to begin on or about January 26, 2016. When issued trading will begin for shares of GCP Applied Technologies common stock on the New York Stock Exchange (“”NYSE””) under the ticker symbol “”GCP WI””. When issued shares of Grace will trade under the symbol “”GRA WI.”” Following the spin-off, GCP Applied Technologies will trade on the NYSE under the ticker symbol “”GCP.””

In conjunction with the announcement, GRA announced that the spin entity, GCP intends to offer $525 million aggregate principal amount of senior notes due 2023. Proceeds from the offering will be used to fund a distribution to GRA in an amount of $500 million, to pay fees and expenses related to the spin-off, financings, and other related transactions, as well as for general corporate purposes.

Additionally, GRA announced preliminary fourth quarter and full year earnings results. For 2015, Grace’s preliminary net sales are expected to exceed $3.0 billion; adjusted EBIT is expected to be in the range of $617 million to $619 million, in line with the company’s October 22, 2015 outlook. For 2015, GCP’s preliminary net sales are expected to exceed $1.4 billion, with improvement in gross margins for the full year 2015 compared to 2014.

As background, GCP Applied Technologies is a leader in cement and concrete chemicals, specialty building materials, and can sealants and coatings. The company’s Construction Products include cement additives, concrete admixtures, and waterproofing products. The Darex packaging business supplies can sealants, closure sealants, and can and closure coatings to the packaged food and beverage industry.

Post-spin GRA will be a specialty chemicals supplier primarily focused on process catalysts and specialty silicas– a healthy, oligopolistic industry with strong barriers to entry and few competitors. Diversified chemicals suppliers tend to trade at higher multiples than more volatile sub-segments such as commodity and agricultural chemicals. Accordingly, we would expect Grace to trade at a higher multiple of around 12x EV/EBITDA based on its stronger ROIC metrics, while GCP should trade at an 8x EV/EBITDA multiple based on its lower margin profile. Post-spin Grace is expected to make strategic acquisitions in its core segments to expand its high-margin specialty chemicals and performance materials portfolio. The spin-off essentially separates a higher-multiple operation, effectively creating a new “”acquisition currency”” to grow the company’s catalyst franchise.

GRA shares have been under recent selling pressure, having declined almost 10% in the past two weeks. The weakness appears to be attributable to the lack apparent operating leverage in the business. We are revising our pre-spin sum-of-the-parts fair value estimate to $93 from $101—primarily owing to recent multiple compression across both the Specialty Chemicals and Construction Products and Packaging sectors, as well as updated information on post-spin cash proceeds to GRA. The fair value estimate consists of $73 for GRA and $20 for GCP, respectively, down from our prior estimates of $79 and $22, respectively. With our revised fair value estimate approximating GRA’s current share price ($92 as of this writing), this analysis implies that the shares adequately reflect the incremental value associated with the split.

GRA will host an investor day on Thursday, January 26, 2016, which could represent a potential catalyst for the shares. For more details, please refer to The Spin-Off Report dated December 28, 2015.

On January 7, 2016, SUPERVALU, Inc. (NYSE: SVU) announced that the company filed an initial Form 10 Registration Statement with the SEC in connection with the possible spin-off of its Save-A-Lot discount grocery store business into a separate, publicly traded company via a tax-free distribution to shareholders. SUPERVALU announced in July 2015 that it was exploring a separation of its Save-A-Lot business, and that as part of that process it had begun preparations to allow for a possible spin-off of Save-A-Lot into a stand-alone public company. As recently as October 2015, management stated that it had multiple work streams in place with respect to the planned separation, including accounting, finance, tax and legal.

Headquartered in Minnesota, SUPERVALU has approximately 40,000 employees and is one of the largest grocery wholesalers and retailers in the U.S. with annual sales of $17.8 billion. The company serves customers across the United States through a network of 3,395 stores composed of 1,854 independent stores serviced primarily by its food distribution business; 1,342 Save-A-Lot stores, of which 901 are operated by licensee owners; and 199 traditional retail grocery stores (store counts as of September 12, 2015).

The spin-off of Save-A-Lot would allow SUPERVALU to concentrate on wholesaling goods to other food retailers, a business which accounted for approximately $8.1 billion (46% of total sales) in its most recent fiscal year (FY2015). Save-A-Lot generated $4.6 billion in FY2015 sales (26% of total SVU sales). SUPERVALU has divested many of its brands in recent years, selling its Albertson’s, Jewel-Osco and other chains. At the same time, competitors have been consolidating. In June 2015, Dutch retailer Koninklijke Ahold NV (AH NA), which owns Stop & Shop and Giant stores, announced a merger with Belgian food retailer Delhaize Group (DELB BB), the parent company of Food Lion, to operate 6,500 stores around the world. Discounter Dollar Tree (NASDAQ: DLTR) completed its acquisition of Family Dollar, bringing its store count to about 13,000.

As a starting point for valuing the spin company, based on recent trends and margins disclosed in the Form 10 filing, it can be estimated that Save-A-Lot could generate approximately $5 billion in revenue and $227 million in EBITDA in F2017 (April FY end). As a standalone company, Save-A-Lot should be compared to other discount retailers, including Dollar General Corp. (NYSE: DG), Dollar Tree Inc. (NASDAQ: DLTR), and Big Lots Inc. (NYSE: BIG), amongst others. Larger value focused operators could also be referenced, such as Wal-Mart Stores Inc. (NYSE: WMT) and Costco Wholesale Corp. (NASDAQ: COST), however these larger operators provide less than perfect comparisons based on size and scale of operations. Save-A-Lot peers currently trade at an average of approximately 9.9x 2016 consensus EBITDA. It should be noted that multiples for discount retailers have expanded in recent years well above historical levels. Historically high peer multiples combined with Save-A-Lot EBITDA margins well below peers (~3% for Save-A-Lot vs. ~8% for the peer group average), it should be expected that as a standalone entity Save-A-Lot will receive a discounted multiple. Applying a discounted 7.5x multiple to forecasted Save-A-Lot EBITDA results in an enterprise value estimate of $1.7 billion.

The post-spin parent company, SUPERVALU, Inc. will have revenue of approximately $13 billion and generate EBITDA of $533 million in F2017 based on annual revenue growth of 1.0%-1.5% and 4.0% EBITDA margins (in line with 1H F2016). Peers to the parent include larger consumer food companies including Kroger Co. (NYSE: KR), Weis Markets, Inc. (NYSE: WMK), and Fairway Group Holdings Corp. (NYSE: FWM), among others, that trade at 7.0x 2016 EBITDA estimates. It should be noted that SVU’s revenue growth profile appears to be below that of many peers. As such a discounted multiple is warranted in our view. Competitors with low single digit revenue growth and similar growth margin profile generally trade between 5.5x and 6.0x 2016 estimated EBITDA. Applying a 5.5x multiple, the low end of similar performing peers, to estimated post-spin EBITDA derives an enterprise value of $2.9 billion.
 
The above analysis generates a total pre-spin sum-of-the-parts implied enterprise value of $4.6 billion for SVU. Based on the current net debt $2.5 billion, and 265.9 million shares outstanding, the above exercises result in a preliminary, pre-spin sum-of-the-parts fair value of $8 per share for SVU, which represents approximately 30% upside from the current share price of $6.26. Despite the implied upside, it is logical to assume that management is similarly pursing a sale of the business given recent consolidation and more challenging fundamentals in the discount grocery industry, which may imply upside to the preliminary fair value estimate.

• Headwaters Inc. (NYSE: HW), primarily a manufacturer of building products and a distributor of fly ash, reports three distinct operating segments: (1) Building Products (59% of sales and 55% of EBITDA in F2015); (2) Construction Materials (39% and 44%); and (3) Energy Technology (2% and 1%).

• In our view, HW will move to sell its non-core Energy Technology assets in F2016-F2017 but could look to further eliminate its conglomerate operating structure by separating its two core businesses, which have minimal operating synergies, via spin-off, Morris Trust transaction, or sale. (Note: In the event of an asset sale, HW estimates it has tax assets to shield about $250 million of pre-tax profits.)

• While HW’s businesses are well run, with solid market positions, and both should continue to enjoy secular/cyclical tailwinds in coming years, in our view a separation could improve underlying performance, in terms of growth, margins, and/or capital allocation, providing incremental value above any potential re-rating, particularly of the Construction Materials segment, which has about a 50% share of an attractive market and generates operating margins of ~20%. In that regard, HW trades at 8x F2017E EBITDA, which we think implies a conglomerate discount to the sum of its parts. Moreover, on a standalone basis each entity could reasonably be forecast to attract acquisition interest and fetch premium multiples from strategic buyers.

• Considering peer valuations and recent M&A multiples as well as management’s financial guidance/commentary, respective value of $13 per share and $17 per share can be assigned to HW’s Building Products and Construction Materials businesses. (The Energy Technology segment is ascribed minimal value but could offer upside optionality in a strategic sale.) Accounting for corporate costs of ~$3.50 per share as well as projected net debt of ~$3 per share yields a sum-of-the-parts value of roughly $24 per share, which implies a weighted average multiple of less than 10x.

On December 9, 2015, Yahoo! Inc. (NASDAQ: YHOO) announced that after further review, the company has suspended work on the planned spin-off of its ownership stake in Alibaba Group Holding Ltd (NYSE: BABA) due to the perceived risk of it creating a taxable event. Recall that in January 2015, YHOO announced a plan to spin off its ownership stake in BABA via a tax-free distribution of shares in a new publicly traded company that was to adopt the corporate moniker Aabaco Holdings Inc.

The suspension of the Aabaco spin plan comes on the heels of pressure from activist investor Starboard Value LP, which delivered an open letter to YHOO’s Board in November 2015 urging the company to explore alternative structures for separating the BABA ownership stake, including a sale of YHOO’s core search and display advertising business and leaving the BABA and Yahoo! Japan (4689 JT) ownership stakes in the existing corporate structure.

In this morning’s announcement, YHOO announced that the company’s Board will evaluate alternative transaction structures to separate the BABA stake, focusing specifically on a reverse of the previously announced spin transaction (spinning off the core business). Management noted on its conference call that the completion of a reverse spin off structure may take up to a year to complete.

Interestingly, over the past several days Verizon Communications Inc.’s (NYSE: VZ) CFO Fran Shammo expressed the possibility that VZ could be interested in purchasing the core Yahoo business if a strategic fit was deemed to exist. Recall that VZ purchased AOL in June 2015 for $4 billion, or 7.7x forward earnings forecasts at the time of the acquisition (including stock-based compensation expense).

For its part, YHOO’s core business has struggled recently in efforts to grow earnings as the company has focused on rightsizing the business through employee headcount reductions, cost reductions, and focusing on growth areas including mobile, video, native advertising, and search, which the company refers to as “MaVeNS”.

The change in structure of the spin transaction (separating core Yahoo and the Yahoo Japan stake from the BABA stake) does not meaningfully change our view on the company’s sum-of-the-parts valuation. Based on the current share price of BABA, Yahoo! Japan, the USD/JPY exchange rate and current expectations for the core Yahoo business, a sum-of-the-parts fair value estimate of $50 remains intact, consisting of $32.84 per share of Yahoo parent (BABA stake) and $17.18 per share of the spin company (core Yahoo, Yahoo! Japan stake, plus current net cash). Core Yahoo’s value is derived by applying a 4.0x multiple to an estimated $500 million of 2016 EBITDA. The 4.0x multiple approximates AOL’s trading multiple in 2011 when the company was still experiencing significant EBITDA declines; the $500 million in EBITDA estimate is a 40% discount to the current 2016 consensus estimate of $839 million. It appears reasonable to discount the consensus estimate due to the inclusion of several estimates that appear to be overly optimistic given the current business trends and uncertainty of the ultimate success of the MaVeNS strategy.

Alternatively a more conservative approach can be taken to account for the high likelihood that remaining Yahoo will trade at a discount to the intrinsic value of the underlying BABA shares. If a 10% discount is applied to the parent entity, and it is considered that the ownership stake in Yahoo! Japan is taxed at a 40% rate, the fair value would decline to $44 per share. Taking it one step further, if the company was to sell the core search and display business, and that was taxed at 40%, the fair value would decline to $43 per share.

Given the above outlined scenarios, YHOO shares still appear to be an attractive purchase given the fact that even in the most conservative scenario described above, shares appear to have an approximate 21% upside from the current share price of $35.83. In a more positive scenario, shares are trading at a near 40% discount to the $50 fair value estimate. As such, combined with the expectations that the Board eventually approves the spin-off of the core business (or a sale occurs) shares of YHOO are still recommended for purchase.

On December 1st, Swiss pharmaceutical firm Galenica AG (Ticker: GALN VX, Market Capitalization: CHF 9.7 billion—USD 9.4 billion) announced that it is moving towards splitting into two units, Vifor Pharma and Galenica Santé. Galenica was included in The Global Spin-Off Radar Screen since September 2014 due to its announcement that it was examining a spin-off within three to five years, once its two units have reached critical mass. According to the December 1st statement, the preconditions set by the Board of Directors have now been met, and the transaction is scheduled for the fourth quarter of 2016.

The two standalone entities, Vifor Pharma and Galenica Santé, comprise Galenica’s existing business units. The former group is focused on the development of pharmaceutical and consumer healthcare products and has an international focus. The latter unit offers logistics, database and network services to healthcare providers and operates pharmacies. In laying the groundwork for the spin-off, the Swiss firm changed its management structure last year: It appointed two CEOs, one for each unit, that are reporting to the Chairman. It is worth noting that they are not considered co-CEOs of Gelenica—the role of group CEO was abolished. Rather, they are considered heads of separate entities.

Following the spin-off, Galenica Santé will be a provider of services to the healthcare industry and an operator of pharmacies. Its three segments, Logistics, Retail and HealthCare Information generated EBITDA of CHF 152 million for the trailing-twelve-months ending on June 30th, 2015. Similar companies that offer a wide array of services, including retail drug distribution, are Celesio AG (CLS1 GR) and UDG Healthcare Plc (UDG LN). Using the 2015 trailing-twelve-month EBITDA figure and a peer group enterprise value-to-EBITDA multiple of 12.9x, Galenica Santé could achieve a firm valuation of CHF 1,963 million.

Vifor Pharma is currently a relatively small pharmaceutical company with a focus on a few products and treatment areas, such as iron deficiency. As such, its classification between a diversified pharmaceutical and a biotechnology company is ambiguous. For the trailing-twelve-months ending on June 30th, 2015, it generated CHF 313 million in EBITDA, and had substantially higher margins compared to Gelenica Santé.

A diverse group of pharmaceutical companies trade at an enterprise value-to-EBITDA multiple of 15.1x. Were the company to be assigned a higher valuation and a status as a promising biotechnology company, it could trade at a multiple of 19.1x—i.e. the average of 15.1x, for its pharma peers, and 23.1x, for its biotech competitors. The resulting enterprise value would range from CHF 4,735 million to CHF 5,980 million. Taking into account CHF 572 million in net debt, the sum-of-the parts Galenica valuation ranges between CHF 6,126 million and CHF 7,666 million.

On November 26th, NCC AB (Ticker: NCCB SS, Market Capitalization: SEK 29.2 billion—USD 3.4 billion) announced that it had commenced preparation for the spin-off of its housing division, NCC Housing, in accordance with the Lex ASEA regulations—i.e., in a tax-free manner. The company’s Board of Directors will make its detailed proposal with regard to the spin-off available on January 28th, 2016, while NCC’s shareholders will vote on the transaction at the company’s AGM that will be held on April 12th of the same year. To ensure the tax-free nature of the transaction, NCC’s controlling shareholder, Nordstjernan AB, will lower its voting power to below 50 percent, from 64 percent currently.

NCC is a Swedish construction and property development corporation operating in the Nordic and Baltic countries, Russia and Germany. It operates in three sectors: industrial, which produces asphalt and aggregates, construction and civil engineering, and real estate development. The latter is split between NCC Housing, which develops residential real estate, and NCC Property Development, which focuses on commercial properties. NCC AB is controlled by private investment firm Nordstjernan AB, owner of 20 percent of shares and 64 percent of voting rights—through the ownership of Class A shares (Ticker: NCCA SS). Nordstjernan AB is the investment vehicle of one of Sweden’s richest families. It is headed by Antonia Johnson and Viveca Johnson. The former has a net worth, according to Forbes, of USD 5.3 billion. The latter also serves as a Director of NCC AB.

NCC’s management and Board commenced the examination of the benefits of a spin-off in September 2015. The rationale for their recently announced decision to separate NCC Housing is that it will allow both companies to better capitalize on the opportunities identified in their respective fields of operations. Despite the very brief explanation provided, one may argue that the spin-off has more specific value-creating reasoning: Firstly, the housing division requires a significant amount of capital to operate, as opposed to the construction and industrial divisions. The separation of NCC Housing would thus free capital that can be used for further expansion. Secondly, as a residential real estate developer, NCC Housing operates with a significant amount of debt. NCC’s Board of Directors expects the spin entity to be capitalized with SEK 5.3 billion in net debt, consequently reducing the parent company’s net debt to SEK 3.8 billion from SEK 9.1 billion, and its leverage from above 3x net debt-to-EBITDA to below 2x.

As an independent company, NCC Housing will develop multi- and single-family houses. It will operate in eight countries—in the Nordics, the Baltics, Germany and Russia—and will hold a land portfolio with more than 30 thousand building rights. The company sold 4,016 housing units during the first nine months of 2015, while it expects to complete approximately 3,000 units in the fourth quarter of the year—the company’s strongest.

Currently, NCC Housing has 9,071 units under construction, compared to 7,950 units as of September 30th, 2014. As of September 30th, 2015, NCC Housing had SEK 17.1 billion in total assets. On a pro forma basis, the company also had SEK 5.3 billion in shareholders’ equity and an equal amount in net debt. Trailing-twelve-month sales and EBIT were SEK 10,320 million and SEK 864 million, respectively.

The average price-to-book value for a group of European homebuilders stands at 2.2x. At that multiple, the value of NCC Housing is estimated at SEK 11,490 million. Additionally, as a homebuilder, the spin entity can be valued on a price-to-earnings multiple. Based on NCC Housing’s pro forma EBIT of SEK 864 million, interest expense of SEK 186 million1 and tax expense of SEK 149 million2, we estimate a pro forma net income of SEK 529 million. At the average price-to-earnings multiple of the company’s peer group, 11.1x, NCC Housing is valued at SEK 9,622 million.

Even following the residential housing spin-off, NCC will not be a pure-play construction firm, as it will still engage in commercial property development as well as aggregates and asphalt production. Nonetheless, it can be viewed as such, since it is expected that it will derive more than 60 percent of its operating income from construction activities, up from approximately 40 percent currently. It will also have a more appropriate capital structure for a construction and engineering firm engaged in an asset-light, project-oriented business.

On a trailing-twelve-month basis, NCC AB generated SEK 1,833 million in operating income, excluding the housing division. Based on the average enterprise value-to-EBIT multiple of similar European construction and civil engineering firms of 15.2x, the company’s enterprise value is SEK 27,800 million. Incorporating SEK 3,830 million in pro forma net debt results in post spin-off equity value of SEK 23,970 million. Furthermore, NCC’s pro forma net income is estimated at SEK 1,267 million—based on the same assumptions used to calculate NCC Housing’s earnings. Based on the 18.4x average price-to-earnings multiple of the corporation’s peer group, NCC post spin-off could be valued at SEK 33,720 million.

Consequently, the sum-of-the-parts valuation of NCC AB, prior to spin-off, stands between SEK 33,590 million and SEK 45,220 million.