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.

On November 17, 2015, after the market close, Citrix Systems Inc. (NASDAQ: CTXS) announced its intention to spin off the GoTo family of products into a separate, publicly traded company via a tax-free distribution to shareholders. The GoTo family of products includes GoToAssist, GoToMeeting, GoToMyPC, GoToTraining, GoToWebinar, Grasshopper and OpenVoice. Following the separation, Citrix, the parent company, will focus on products that securely deliver applications and data. Chris Hylen, the current senior vice president and general manager of the Citrix Mobility Apps Business Unit will assume the CEO role at the new, yet to be named company. The separation is subject to an effectiveness declaration of a Form 10 filing with the SEC and final Board approval, and is expected to be completed in 2H 2016.

In conjunction with the spin off announcement, CTXS also announced corporate restructuring plans that include the elimination of 1,000 full-time and contract employee roles, plans to focus investment resources on secure and reliable application and data delivery, including XenApp, XenDesktop, XenMobile, ShareFile and NetScaler products, and the elimination of some product platforms. The company expects to reduce operating costs in excess of $200 million by 2017. The combination of the spin and cost reductions should allow the company to return significant capital over time.

Citrix’s board of directors authorized an ongoing stock repurchase program worth up to $5.9 billion, $500 million of which was approved in September 2015. Under this program, Citrix may repurchase stock “at any time until the approved amount is exhausted” and, as of September 30, 2015, roughly $336.8 million was still available. The company expects that following the completion of the announced strategic actions that operating margins will expand to over 30% and the company can capture revenue growth of 4% – 5% in 2017 (on a consolidated basis).

The separation of the GoTo family of products has been posited since July 2015, when the company announced that it was exploring strategic alternatives for the GoTo products, as well as the ByteMobile business. On a consolidated business, the core Citrix businesses (to remain with the parent) have seen slower growth in recent years than the GoTo products due to investments being made in Mobility Apps, however the margins at the core business are greater suggesting that following the spin-off, operating margins at the parent entity should exceed 30%. Management rationale for the separation appears rooted in disposition of the non-core GoTo business and a refocusing of effort and investment on the core business of application virtualization and security.

The GoTo products are cloud-based Software-as-a-Service (SaaS) that facilitate communication and collaboration solutions primarily for small businesses. The products included in the spin company consist of most of the current applications classified within the Mobility Apps segment, and has trailing revenue of $600 million. Applying a 12% growth rate, the business can be estimated to generate $672 million in NTM sales. GoTo’s primary on-demand competitor and closest valuation comparable is LogMein, Inc. (NASDAQ: LOGM), which currently trades at a 4.7x forward EV/sales multiple. However, post-spin GoTo will likely be ascribed a discounted multiple, as LogMein has a technologically superior architecture, higher gross margin (approximately 90%, versus 80% for GoTo), and superior revenue growth profile (estimated year-over-year growth of 22%, versus approximately 12% for GoTo). GoTo’s competitive dynamics are less favorable relative to on-demand peers, and the business will likely experience secular headwinds. Accordingly, applying a more conservative, discounted 2x to 3x multiple generates an implied enterprise value of between $1,344 million and $2,016 million for the business.

The parent entity’s product portfolio focuses on desktop virtualization, enterprise mobility management, enterprise file sync and sharing, and secure application and data delivery. In this context, the spin-off refines the company’s strategic focus. The parent entity (ex-GoTo) generated approximately $2.5 billion in C2014 sales. Applying a growth assumption of 6%, the business can be expected to generate sales of $2.6 billion and $2.8 billion in C2015 and C2016 respectively. Post-spin CTXS can be compared with virtualization companies including VMWare, Inc. (NYSE: VMW), Microsoft Corp. (NASDAQ: MSFT), Oracle Corp. (NASDAQ: ORCL), and Red Hat Inc. (NYSE: RHT), as well as application security companies such as Palo Alto Networks, Inc. (NASDAQ: PANW), Imperva Inc. (NYSE: IMPV), and Fortinet, Inc. (NASDAQ: FTNT). Note that CTXS is not a pure software supplier, but a hybrid that sells both hardware and software subscriptions, which broadens the company’s comparable universe. Such companies trade, on average, at 5x sales (although the range varies widely, between 4x and 8x). Applying a peer average multiple of 5x to estimated 2016 sales generates an implied enterprise value of $12.5 billion for post-spin CTXS.

The above analysis generates a total pre-spin SOTP implied enterprise value range of $13.8 billion to $14.5 billion for CTXS, with the variability largely dependent on the applied multiple for the GoTo business. Based on cash and equivalents of $1,073 million, total debt of $1,317 million, and approximately 154 million shares outstanding, CTXS shares can be fairly valued at between $88 and $93, which represents approximately 12% to 18% potential upside to the current price ($78.42 as of yesterday’s close). It is important to note, however that as of September 30, 2015, $1.52 billion of the company’s $1.87 billion of cash, cash equivalents and investments was held by foreign subsidiaries, suggesting that the company may need to raise additional debt to appropriately fund the spin entity, which could in turn, impact the valuation. The board may also use proceeds from the spin-off to accelerate the company’s post-spin share repurchase program.

On November 18, 2015, ConAgra Foods, Inc. (NYSE: CAG) announced its intention to spin off its Lamb Weston business, into a separate, publicly traded company via a tax-free distribution to shareholders. Lamb Weston, the company’s frozen specialty potato business, generated $2.9 billion in fiscal 2015 revenues, and will operate under this name following the separation. The Company’s interests in several joint ventures, including Lamb Weston / Meijer in Europe will remain with the business following separation. The Lamb Weston management team and capital structure will be announced at a later date. The spin-off is expected to be completed in the fall of 2016.

The post-spin parent company, to be renamed ConAgra Brands, Inc. will be led by CEO Sean Connolly, and will be comprised primarily of the operations currently reported as the Company’s Consumer Foods segment. This business, which generated approximately $7.2 billion in fiscal 2015 revenues, consists of popular leading brands such as Marie Callender’s, Hunt’s, RO*TEL, Reddi-wip, Slim Jim, PAM, Chef Boyardee, Orville Redenbacher’s, P.F. Chang’s and Healthy Choice. Conagra Brands is also expected to include several businesses currently reported within the Commercial Foods segment, including the traditional foodservice business, Spicetec Flavors & Seasonings and JM Swank, as well as certain private label operations which were moved to the Consumer Foods reporting segment in the first quarter of fiscal 2016. These businesses generated approximately $1.8 billion in fiscal 2015 revenues. Conagra Brands is also expected to retain the Company’s stake in the Ardent Mills joint venture. The post-spin parent is expected to maintain an attractive dividend (currently 2.5% for the consolidated company), while continuing to optimize operational efficiency, invest in the business, and pursue strategic acquisitions.

Separately, in connection with the company’s pending sale of its private label business to Treehouse Foods, Inc. (NYSE: THS) CAG announced an expectation to have a capital loss carry-forward of approximately $4.2 billion (which translates to an approximate tax value of $1.6 billion), which can be used to offset potential future capital gains over the next 5 years. As such, it appears that there may be dual-track process at work, which would support the case for continued industry consolidation that is currently being led by The Kraft Heinz Company (NASDAQ: KHC). Management has noted that it plans to use the proceeds from the private label sale ($2.7 billion) for debt reduction, as well as its intention to focus on business performance, including a $300 million efficiency plan.

As a starting point for valuing the spin company, it can be estimated that F2016 revenue will total $3.0 billion based on F2015 revenue of $2.9 billion and growth of 5.0%, in line with the most recent quarters’ reported growth for the frozen potato business. The commercial food business operated with a 19.7% operating margin in F2015. Assuming the Lamb Weston business margins are roughly in line with the segment as a whole, and a slight margin expansion on increased sales, while assigning proportionate depreciation and corporate expenses, Lamb Weston could be expected to generate $596.1 million in EBITDA. As a standalone company, Lamb Weston should be compared to other food service companies with a narrower focus than the current CAG. Competitors could include Campbell Soup Co. (NYSE: CPB), TreeHouse Foods Inc. (NYSE: THS), and B&G Foods Inc. (NYSE: BGS), among others, which currently trade at an average of approximately 11.5x 2016 consensus EBITDA. Applying this peer group multiple to forecasted Lamb Weston EBITDA results in an enterprise value estimate of $6.9 billion.

The parent company, ex-Lamb Weston, will have revenue of approximately $9 billion. The consumer foods segment has seen minimal sales growth in recent years. As such it could be forecast to generate flat revenue next year. Based on historical operating margins (14.6% in F2015) and anticipated efficiency improvements planned by management, slight margin expansion to 15% appears a reasonable assumption. Incorporating historical depreciation expenses and proportionate corporate expenses, following the separation the parent entity can be forecast to generate $1.3 billion in EBITDA. Peers to the parent include larger consumer food companies including Pinnacle Foods Inc. (NYSE: PF) and General Mills Inc. (NYSE: GIS), among others, that trade roughly in line with the current CAG valuation (12.5x for this peer group versus CAG’s current multiple of 12.8x). Applying a 12.5x multiple to estimated post-spin EBITDA derives an enterprise value of $16.4 billion.

The above analysis generates a total pre-spin SOTP implied enterprise value of $25.9 billion for CAG (including $2.7 billion in sale proceeds from the private label business). Based on the current net debt $7.8 billion, and 432.9 million shares outstanding, the above exercises result in a preliminary, pre-spin sum-of-the-parts fair value of $42 per share for ConAgra, which is roughly in-line with the current share price of $40.97. The lack of upside shown in the previous exercises may be a function of the current market valuations placed on consumer food brands versus the historical averages. As a point of reference, CAG’s 10-year historical average forward EV/EBITDA multiple is just 9.0x. The inflated industry multiples are likely due to the current premium being paid for consolidation, which may suggest moderate upside to the fair value derived in the event of a sale of either select divisions or the company as a whole.