On April 7, 2016, after the market close, Pinnacle Entertainment Inc.’s (NASDAQ: PNK) Board of Directors approved the spin-off of PNK Entertainment (OpCo), which will complete the planned separation of the company’s real estate assets from the operating assets. Shareholders of record as of April 18, 2016 will receive one share of OpCo for each share of PNK owned. The distribution is expected to be made on April 28, 2016. PNK Entertainment will control the operations, real property of Belterra Park Gaming and Entertainment Center, and undeveloped land at certain locations.

PNK is the owner, operator and developer of regional casinos and related hotels and entertainment venues. On July 21, 2015, Pinnacle Entertainment Inc. announced that the company had agreed to sell substantially all of its real estate assets to Gaming and Leisure Properties Inc. (NASDAQ: GLPI). To effect the real estate sale, immediately following the distribution of PNK Entertainment shares, the parent company will merge with Gaming and Leisure Properties Inc. (NASDAQ: GLPI), whereby PNK shareholders will receive 0.85 shares of GLPI for every share of PNK owned as of the record date. Following the merger, OpCo will adopt the corporate moniker Pinnacle Entertainment Inc, and will trade on the NASDAQ under the symbol “”PNK””. The distribution of OpCo will be treated as a taxable dividend.

Based on 0.85 shares issued to PNK shareholders, worth $26.89 per share of PNK, GLPI will issue 51.9 million new shares, implying OpCo would implicitly trade at $9.09 per share. Based on expected 2017 EBITDA of $300 million, shares of new Pinnacle (OpCo) would trade at 4.4x EV/EBITDA.

Following the merger, GLPI shares outstanding will total 197.6 million, with PropCo shareholders controlling approximately 26% of shares outstanding. Based on estimated 2017 EBITDA of $915 million and adjusted FFO of $689 million, post-merger shares of GLPI should initially trade at 12.2x 2017E EBITDA and 9.1x 2017E AFFO, assuming that immediately following the spin-off, the share price approximates the price directly prior to the distribution.

GLPI’s fair value estimate has been adjusted to $35 per share (previously $30 per share) reflecting the company’s recent equity offering of 25 million shares at $30 per share on March 31, and changes in peer multiples. Shares are valued based on an average estimate derived from a dividend yield, price to AFFO and EV to EBITDA using discounted multiples to peers to account for GLPI’s historic trading discount to more diverse and retail oriented triple-net lease REIT peers. If shares were to be valued in line with peers, upside would exist to $41 per share.

The post-spin fair value estimate for PNK has been revised to $12 per share (previously $7.49 per share) on modest multiple expansion for peers, and lower net debt. The fair value is derived under the assumption that 2017 EBITDA is 10% below managements projections, while shares trade at levels roughly in line with the low end of Penn National Gaming Inc.’s (NASDAQ: PENN) normalized trading range following the completion of a similar transaction to PNK’s. The low end of the range is used to account for the smaller size of the portfolio and reduced EBITDA margins due to the inclusion of the incremental rental expense.

On a pre-spin, sum-of-the-parts basis, shares of PNK can be assigned a fair value estimate of $42 per share, consisting of $30 for the parent company (to be merged with GLPI, 0.85 * GLPI FVE of $35 per share), and $12 for the spin company, which will be renamed Pinnacle Entertainment. The fair value estimate represents 15% implied upside to the current share price ($35.98 as of this writing). Given the implied upside shares of PNK are recommended for purchase prior to the transaction. That said, it should be noted that the majority of the value is assigned to the real estate portion of the transaction and GLPI will carry almost $5 billion in net debt, placing it at the higher end of peers. In the current market environment, heavily levered companies have been assigned an additional risk premium, whether warranted or not. REIT peers with leverage in excess of 5x are generally awarded lower multiples, which supports the use of lower AFFO and dividend yields in GLPI’s valuation.

Community Health Systems Inc.’s (NYSE: CYH) Board of Directors has approved the spin-off of a new, standalone public company to be named Quorum Health Corp. The spin-off will be completed via a tax-free distribution of shares on April 29, 2016 to shareholders of record as of April 22, 2016. Shareholders of record will receive one share of Quorum Health for every four shares of CYH held. The spin entity will trade on the NYSE under the symbol “”QHC””. When-issued trading is expected to begin on or about April 20, 2016, with regular way trading set to begin May 2, 2016.

The spin company, to be named Quorum Health Corporation, will include a diversified portfolio of 38 hospitals with an aggregate of 3,582 licensed beds across 16 states. The hospitals that will comprise Quorum Health Corporation have strong market positions and are primarily located in cities or counties having populations of 50,000 or less. In 84% of these markets, the QHC hospital is the sole provider of acute care hospital services. Quorum Health Corporation will also include Quorum Health Resources, which provides hospital management and consulting services to non-affiliated hospitals across the U.S., most of which are located in markets similar to Quorum Health Corporation’s sole-provider hospitals.

Quorum Health Corporation will effectively take shape as a throwback to CYH’s roots as a small group of rural-based, sole-provider hospitals. CYH (the parent) will focus on expanding services offered at its larger networked hospitals, which were mostly acquired since 2007. The two systems have bifurcated operating and capital needs, which has resulted in QHC’s portfolio being largely underinvested under the current corporate structure. Given this rationale, it should not be expected that an immediate value unlocking will occur. Instead, each systems’ potential upside arises from its ability to conduct accretive acquisitions and widen margins through centralized systems and cost controls, which is not much different from CYH’s overall goals in recent years.

The pre and post-spin fair value estimates have been adjusted to reflect current business trends being below prior forecasts, revised management guidance, and finalized capital structures. This includes a lower cash distribution from QHC to CYH of $1.23 billion versus the prior estimate of $1.35 billion. Additionally, the finalized share distribution ratio has been set at one for four. The post-spin fair value estimate for QHC is revised to $15 per share (previously $17) based on the midpoint of revenue guidance ($2.2 billion – $2.3 billion) and EBITDA of $259 million (11.5% margin), valued at 6.5x 2016 EBITDA. The multiple used to value shares of QHC is in line with the prior multiple assumption.

The post-spin CYH fair value estimate has been revised to $18 per share, reflecting an increase in post separation net debt totaling $16.3 billion (previously $16 billion), partially offset by a decrease in shares outstanding. On a sum-of-the-parts basis, pre-spin shares of Community Health are assigned a fair value estimate of $21 per share, representing approximately 15% potential upside from the current share price ($18.33 as of this writing). Despite the implied upside, shares of CYH are not recommended for purchase prior to the spin-off. CYH’s current business trends, including admission trends and increasing levels of bad debt expense, if sustained, pose risks to CYH’s ability to reach the estimated revenue and EBITDA estimates. Further, the disparate size of the post spin entities ($18.3 billion for CYH versus $1.7 billion for QHC) is likely to result in selling pressure on the spin entity, while the leverage levels of CYH are likely to be an overhang on shares until the company can use excess cash flow to retire debt (management estimates this could occur later this year). Longer term investors may wish to revisit the spin entity with the focus on the company’s ability to grow via acquisition.

On March 31st, Hengan International Group Co Ltd (Ticker: 1044 HK, Market Capitalization: HKD 81.8 billion—USD 10.5 billion), a manufacturer of personal hygiene and food products, announced its decision to proceed with the spin-off of its food and snacks business by means of a distribution in-specie to its shareholders. In connection with the transaction, the company submitted its listing application to the Hong Kong Stock Exchange. No timeline for the demerger has been provided.

Hengan will distribute to shareholders its 51 percent stake in its food and snacks business, named Qinqin Foodstuffs Group Co Ltd. Therefore, the transaction will facilitate the public listing of privately-owned Qinqin, and will allow it to potentially raise additional funds through the equity capital markets. Additionally, the transaction will allow for greater management focus and a more appropriate remuneration structure for the Qinqin executives. At the same time, it will improve transparency and allow shareholders to choose which business they prefer to be invested in.

Qinqin Foodstuffs Group is a Chinese producer of jelly products, crackers, chips, seasoning products and baker and confectionary products. Its market share in jelly products is the third largest in the country. Sales have been declining since 2013 across all of the company’s categories, primarily due to weaker consumer spending and economic slowdown in Qinqin’s primary end markets, which are second and third-tier cities Furthermore, the Chinese jelly market has suffered from two incidents of reported toxic gelatin use, in 2012 and 2014, by the company’s competitors. That has resulted in lower consumer confidence and translated in lower sales. Since 2013, Qinqin’s total revenue have declined by 20 percent, while revenue from its Jelly division—the company’s largest, comprising 60.2 percent of sales in 2015—have declined by 24 percent.

Revenues and operating income for 2015 stand at RMB 1,020 million and RMB 76 million, respectively. EBITDA for 2015 is estimated at RMB 116 million. Peer enterprise value-to-EBITDA multiples appear to be very scattered. However, it seems that several competitors trade at a 10x multiple. Applied to the firm’s EBITDA, it results in an enterprise value of RMB 1,390 million (HKD 1,670 million). Qinqin’s pro forma balance sheet has no debt and RMB 220 million in cash. Thus, its equity is valued at RMB 1,610 million (HKD 1,940 million). Given that Hengan’s shareholders will own 51 percent of the business, their stake is valued at RMB 820 million (HKD 990 million).

On March 30th, Metro AG (Ticker: MEO GR, Market Capitalization: EUR 9 billion—USD 10.2 billion), a European retailer, announced its decision to split into two independent companies, a Wholesale and Food Specialist group and a Consumer Electronics group. The former group will be spun out, while the latter will remain as the parent company under a different name. The demerger will undergo further review, and it is subject to final Board as well as shareholder approval. It is expected that the spin-off will be completed by the middle of 2017.

The result of the transaction will be the creation of two distinct retailers. The spin entity will operate a wholesale and retail food distribution network, while the parent corporation will focus on consumer electronics. The spin-off will allow greater management focus, while each company will be able to adopt an appropriate capital structure. Furthermore, each separate entity will be able to pursue its own acquisition strategy, using its stock as currency.

Finally, investors will no longer have to invest in a diversified consumer staples company, but will have the opportunity to choose whether they want to be shareholders of a food wholesaler and retailer and/or an electronics retailer. This particular issue is of utmost importance; it appears that currently Metro AG’s valuation is suffering from a deep holding company discount, while its operations do not benefit from any synergies between the two divisions. It is indicative that Metro trades at an enterprise value-to-EBITDA multiple of 4.2x, well below its food services peers and even below its consumer electronics competitors.

Following the spin-off, the Wholesale and Food Specialist company will operate under the Metro Cash & Carry and Real divisions. Metro Cash & Carry is one of the world’s largest wholesale traders, operating under the METRO and MAKRO brands in 26 countries in Europe and Asia. Its clients include a wide range of professionals, from independent retailers to hotels and restaurants. The Real segment operates a hypermarket chain in Germany.

The Metro Cash & Carry division has achieved 10 consecutive quarters of like-for-like sales growth. FY2015 sales1 were EUR 29.7 billion. The Real hypermarket segment has been struggling, with steeper revenue declines on both gross and like-for-like level. FY2015 revenues for Real were EUR 7.7 billion. In order to reverse the declining sales trend, Metro is seeking to expand its online delivery services. FY2014 and FY2015 delivery sales for the Wholesale & Food Specialist company were EUR 2.8 billion and EUR 3.1 billion, respectively. European peers that offer both food retailing and wholesale services such as Sainsbury Plc and Axfood AB trade at an average enterprise value-to-EBITDA multiple of 8.3x. Based on the spin entity’s EBITDA of EUR 1.6 billion, its enterprise value is estimated at EUR 13.2 billion. Were the company to trade at the lower end of the valuation range—5.8x—it would have an enterprise value of EUR 9.2 billion.

The Consumer Electronics company will operate under numerous brands, the largest of which are Media Markt and Saturn. As a standalone entity, it should be the largest consumer electronics retailer in Europe, with FY2015 sales of 21.7 billion. Facing a challenging environment, it too is seeking to accelerate growth through e-commerce. Online sales in FY2014 and FY2015 were EUR 1.4 billion and EUR 1.8 billion, respectively. The company’s competitors—Dixons Carphone Plc, Dary Plc and Groupe Fnac SA—trade at an average enterprise value-to-EBITDA of 6.1x. Based on an EBITDA of EUR 0.7 billion, the resulting enterprise value is EUR 4.3 billion. Metro owns 78 percent of the business, therefore reducing the value of its stake to EUR 3.3 billion2. Group Fnac trades at a noticeably lower multiple than its peers—2.9x. At that level, the Consumer Electronics business would have an enterprise value of EUR 2.1 billion, or EUR 1.6 billion at the parent entity’s share.

Currently Metro AG has approximately EUR 0.9 billion in net debt. Therefore, the combined entity’s valuation ranges from EUR 9.9 billion to EUR 15.6 billion.

On March 11th, TrustPower Ltd (Ticker: TPW NZ, Market Capitalization: NZD 2.3 billion—USD 1.6 billion), a New Zealand-based company providing renewable electricity generation and retail distribution, announced its decision to separate its Australian and New Zealand wind assets into a new company which for now will be called NewCo. At the same time, the parent entity will be renamed TrustPower Core. The decision to pursue the spin-off follows a December 2015 press release indicating that the company is entertaining such a demerger. The transaction is expected to be completed during the summer of 2016. A demerger booklet will be distributed in June, followed by a shareholder vote in July. In addition to shareholder approval, the spin-off is subject to the consent of the company’s bondholders and the refinancing of its existing credit facilities.

The demerger will separate TrustPower’s core assets of hydro-electricity generation and retail distribution from its higher growth wind generation portfolio that will likely require additional capital to expand. As the two corporations will have a different operational profile, the spin-off will allow each entity to adopt its own strategy and an appropriate capital structure. Furthermore, NewCo and TrustPower Core will cater to different shareholders due to their diverse risk and growth profiles.

TrustPower Core will be headed by the company’s existing CEO, Vince Hawksworth. Its power generation business has a capacity of 530MW in New Zealand and Australia. In fiscal 20151, TrustPower Core generated 1,566 GWh in New Zealand and 287 GWh in Australia. Its retail business offers electricity as well as bundled packages that include telecommunications (broadband and phone) and gas services. As of March 2015, it had 300 thousand connections, with 80 percent comprising electricity customers.

In the first half of F2016, TrustPower Core generated on a pro forma basis revenues and EBITDA of NZD 507 million and NZD 127 million, respectively. Australian and New Zealand electric utilities engaged in power generation and distribution trade at an average enterprise value-to-EBITDA multiple of 9.7x and at an average enterprise value-to-sales multiple of 3.2x. The resulting enterprise value for TrustPower Core ranges from NZD 2,460 million to NZD 3,120 million.

NewCo’s profile as a standalone business will be substantially different. The company will be solely engaged in power generation, with a focus on wind—and potentially solar—energy. It has installed maximum capacity of 580 MW, 66 percent of which is located in Australia and the remaining in New Zealand. The company’s strategy is to increase its cash flow visibility by entering into long-term power purchase agreements (PPAs). Currently, NewCo has agreements with Origin Energy in Australia, and intends to engage TrustPower Core as its counterparty in New Zealand.

At the same time, NewCo has identified an extensive list of projects in the two countries with a maximum capacity of 2,080 MW. That involves long-term ventures; its earliest investment decision, on the 52 MW Salt Creek project, will come in the first quarter of 2017. It is true that the company is ideally positioned to capture market share in the wind-power market, as it has been developing such assets since 2000 and it has an estimated 11 percent market share in the two countries. At the same time, such a pipeline will require significant capital. It is therefore expected that the company will not be assigned a lot of debt, and that it will issue new equity following the spin-off.

During the first six months of F2016, NewCo generated on a pro forma basis revenues and EBITDA of NZD 78 million and NZD 58 million, respectively. The very high EBITDA margin of 74 percent—compared to TrustPower Core’s 25 percent during the same period—appears typical for wind energy generators. Infigen Energy (IFN AU), NewCo’s closest peer, achieved an EBITDA margin of 70 percent in 2015. Infigen trades an enterprise value-to-EBITDA multiple of 9.2x and an enterprise value-to-sales multiple of 10.7×2. The resulting enterprise value for NewCo ranges from NZD 1,060 million to NZD 1,680 million. Taking into consideration TrustPower’s NZD 1,184 million in net debt, the pre-spin entity is valued between NZD 2,340 million and NZD 3,690 million.

On February 26, 2016, Hilton Worldwide Holdings, Inc. (NYSE: HLT) announced plans to spin the bulk of its real estate business into a publicly traded real estate investment trust (REIT) as well as to spin off its timeshare business, Hilton Grand Vacations (HGV), as a separate publicly traded company. The spin-offs will result in the creation of three separate publicly-held companies. Hilton Worldwide has received a private letter ruling from the Internal Revenue Service on certain issues relevant to the qualification of the spin-offs as tax-free. The transactions will be effected via distribution of the new entities’ stock to existing shareholders. The company intends to file appropriate registration statements with the Securities and Exchange Commission (SEC) during the second quarter and to complete both spin-offs by the end of 2016.

Hilton Worldwide intends to elect REIT status for the newly formed real estate company, which will include approximately 70 properties and 35,000 rooms, forming one of the largest and most geographically diverse publicly traded lodging REITs. The REIT will have a high quality portfolio of luxury and upper upscale assets, located across high-barrier-to-entry urban and convention markets, top resort destinations, select international regions and strategic airport locations. The Hilton Worldwide portfolio includes luxury names such as Conrad and Waldorf Astoria, as well as lower to mid-scale brands such as the Hampton Inn.

The timeshare company will manage nearly 50 club resorts in the United States and Europe and have an exclusive, long-term license agreement with Hilton Worldwide to market, sell and operate resorts under the Hilton Grand Vacations brand. Hilton’s timeshare segment generated $1.3 billion in 2015 revenue and $352 million in EBITDA. The post spin parent company generated $5.8 billion in revenues from management and franchise fees, and $2.8 billion in EBITDA.

The announcement does not come unexpected, as Hilton CEO Christopher Nassetta has previously noted that the company had been actively looking at spinning off its real estate business as a means of maximizing shareholder value. The spin-off of real estate assets into REITs have become a pervasive trend among restaurants, retail and casino companies seeking tax benefits associated to property trusts. Notably, in the hotel segment, Marriott International, Inc. spun off its real estate assets.

Comparables to the new REIT company include Pebblebrook Hotel Trust (NYSE: PEB), Summit Hotel Properties Inc. (NYSE: INN), and Ashford Hospitality Trust Inc. (NYSE: AHT), among others. The higher end of REIT comparables trade at almost 16x 2016 EBITDA. The timeshare business is most comparable to Marriott Vacations Worldwide Corp. (NYSE: VAC), which itself was spun off from Marriott International Inc. (NASDAQ: MAR) in 2011 in a similar transaction to HLT’s announcement. VAC has averaged approximately 13x forward EBITDA since becoming a public company. The parent business will remain largely the same, with the addition of a rental expense to lease back the properties placed in the new REIT company, and can be compared to a basket of other lodging companies including MAR, Choice Hotels International Inc. (NYSE: CHH), and others. Lodging peers trade on average around 11.5x forward EBITDA, with higher quality properties, which we believe HLT also can be categorized as having, trading closer to 15x.

As a basis for estimating the earnings potential for the three separate companies, 2015 revenue growth and margins can be combined with management’s commentary for 2016. While there is a lack of disclosures on the REIT rental income, it can be estimated that the company will generate $1.4 billion in revenue based on REIT peer revenue per room of approximately $41,000, and a 50% EBITDA margin, which approximates other REIT margin structures. The timeshare business can be expected to increase 13% year-over-year, representing a slight acceleration from 2015 growth of 11.7%, while maintaining margins of 26.9%. The parent company is forecast to increase revenue by 10%, based on increased management fees and an increased number of rooms coming online. Assuming margins remain stable, and accounting for the estimated $1.4 billion in rental expense, the parent entity will generate $1.6 billion in EBITDA in 2016.

Applying peer multiples to estimated 2016 EBITDA for each of the companies estimated earnings, and capitalizing $228 million in corporate costs at the weighted average multiple used results in a sum-of-the-parts enterprise value of $37.2 billion. Accounting for $10.2 billion in net debt and 987.5 million shares outstanding, a preliminary fair value estimate of $27 per share can be derived. Shares of HLT are currently trading at $20.56.

February 22, 2016 represented the record date for the distribution of Manitowoc Foodservice, Inc. (“MFS”) from The Manitowoc Company (NYSE: MTW). MTW’s Board has set a distribution date of March 4, 2016, for shares of MFS. Shareholders will receive one share of MFS common stock for every share of MTW common stock held. Shares of Manitowoc Foodservice, Inc. common stock are currently trading in the when-issued market on the New York Stock Exchange (“NYSE”) under the ticker symbol “MFS-WI”. When issued shares of MTW are currently trading under the symbol “MTW-WI.” Following the spin-off, Manitowoc Foodservice, Inc. will trade on the NYSE under the ticker symbol “MFS.” Regular way trading is expected to begin on March 4. 2016.

As background, Manitowoc is a multi-industry capital goods manufacturer operating under two main segments—Cranes and related products (54% of 2015 sales, FY ending December) and Foodservice equipment (46% of 2015 sales). The Cranes business, which reported annual revenue of $1.9 billion in the 12 months ended December 31, 2015, 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, 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; blended operating margin has declined from 7.7% in 2014 to 3.9% in 2015. Similarly, a recovery in the Cranes sector has been elusive, owing primarily to soft demand for rough terrain and boom trucks in North America as well as a weak recovery of non-residential construction markets (particularly utility power plants).

Our fair value estimates have been adjusted to reflect updated peer multiples, updated financial guidance for both entities as well as 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 sum of the parts fair value estimate has been revised to $18.16 (previously $15.22), comprising $5.63 and $12.53 for MTW and MFS, respectively (from $6.84 and $8.38, respectively) (see attachment). In the when-issued market, shares of MTW-WI and MFS-WI are trading at $3.13 and $12.70 per share, respectively.

The fair value estimate for MFS implies a multiple of 10.6x 2016E EBITDA, which is approaching the Foodservice comparable average of 11.8x, albeit a discount to Middleby Corp. (NASDAQ: MIDD) at 12.8x. While the shares appear to be implicitly factoring in for a potential acquisition scenario, we believe near-term upside potential is limited for MFS, owing to depressed margins relative to historical levels as well as to peers—particularly, MIDD, which currently generates a 22% EBITDA margin (versus 18% for MFS).

At the same time, the premium implied valuation on MFS appears to be weighing on the valuation for post-spin MTW, as the latter is trading at $3.13 in the when-issued market, a near 45% discount to our $5.63 fair value estimate. As such, the shares present a near-term trading opportunity. It should be noted, however, that near-term fundamentals are concerning, owing to weak order growth (down 39% year-over-year), deteriorating margins, and weakening global end markets. That said, MTW appears well capitalized to weather the current market conditions as it will have a small net cash position upon separation and it could even be a potential acquisition target for a larger player such as Terex Corp. (NYSE: TEX). Full realization of MTW’s post-spin fair value estimate is predicated on a cyclical rebound in the crane industry and is likely suited to longer-term investors willing to endure volatility that typically occurs as an industry reaches a cyclical trough. For more details, please refer to the Manitowoc Company Inc. Spin-Off Report dated January 22, 2016.

On February 16th, Canadian fleet management and equipment finance company Element Financial Corp (Ticker: EFN CN, Market Capitalization: CAD 5.1 billion—USD 3.7 billion) announced its plan to split into two companies, Element Fleet Management—focused on fleet management—and Element Commercial Asset Management—focused on commercial finance. The decision to pursue a spin-off followed a strategic review of the company’s units that commenced in October 2015. The transaction is expected to be completed within 2016 in a tax-free manner, and is subject to customary approvals, including a final approval by the Board of Directors.

Element Financial is currently organized under the following divisions: Fleet Management, Rail Finance, Commercial & Vendor Finance, and Aviation Finance. It provides both asset based financing and leasing services. However, its Fleet Management segment is operating in a distinct manner from the rest of the group, requiring operating expertize and generating a significant portion of its revenues from fees. On the other hand, the company’s remaining operations are focused on asset management, without requiring the operations of the assets owned or financed.

Consequently, the spin-off aims to create two companies with district operating models: The first one, Element Fleet Management, will be an operating company alongside a traditional leasing/financing corporation. Element Commercial Asset Management will take steps to transform itself into a pure fund management company, deploying proprietary and third-party capital into assets such as railcars and various forms of equipment. The two standalone entities will be able to optimize their capital structures, with the fund management corporation taking advantage of leverage to dramatically increase its ROE. Furthermore, the two companies will cater to different shareholders, with Element Commercial Asset Management targeting yield-oriented investors for its funds, and, consequently, for its equity base.

Element Fleet Management will be headed by Element Finance’s president, Bradley Nullmeyer. As a standalone company, it will be one of the world’s largest fleet management corporations, with operations in the US, Canada, Mexico, Australia and New Zealand. Its portfolio will comprise CAD 17.5 billion in fleet assets and CAD 2 billion in rail assets—with the latter category being managed externally by Element Commercial Asset Management. Element Fleet Management intends to undertake more asset-backed debt while still targeting an investment grade credit rating. Element Financial expects the unit to generate EPS of CAD 1.20 to CAD 1.30 in 2016. As a standalone company, Element Fleet Management does not appear to have any direct peers. However, it can be viewed as a combination of a leasing/asset financing corporation such as CIT Group Inc and a fleet management and rental company such as Hertz Global Holdings Inc. CIT Group and GATX Corp trade at an average price-to-earnings multiple of 8x. Hertz and its peers trade at an average multiple of 13.7x. Using the average of the two groups, Element Fleet Management could be valued between CAD 5,020 million and CAD 5,440 million.

Element Commercial Asset Management will comprise Element Financial’s Commercial and Vendor Finance Operations, along with the management of rail and aviation assets. Steven Hudson, CEO of the current entity, will head the new corporation. Element Commercial Asset Management aims to reposition itself as an asset manager from an asset owner: On a pro forma basis the company owns and manages assets valued at CAD 7 billion—with the majority of the assets owned. By the end of 2016 the company expects to raise its assets under management to CAD 9 billion through the creation of various asset financing funds and control a portfolio of more than CAD 11 billion, including owned assets.

The company’s guidance for 2016 EPS is CAD 0.35 and CAD 0.40. Using the 8x price-to-earnings multiple of asset financing companies CIT Group and GATX Corp, Element Commercial Asset Management’s valuation is estimated between CAD 1,080 million and CAD 1,140 million. The resulting sum-of-the-parts valuation of Element Financial is between CAD 6,110 million and CAD 6,780 million.

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.