• A shift out in the valuation horizon yields a revised sum-of-the-parts (SOTP) fair value of $115 for SWK.

• At SWK’s Investor Day on May 15th, management indicated that although it views the Security business as attractive and remains committed to its turnaround plan the segment’s long-term “fit” in the SWK portfolio continues to be evaluated. The company also suggested that the self-imposed moratorium on acquisitions in other facets of the business (i.e. fasteners and tools) may be waning.

• The company reaffirmed 2015 guidance as well as its longer-term financial & operating goals, which include 4-6% annual organic growth and a consolidated operating margin of 16% by 2018.

• Largely driven by improving operating results, SWK shares have returned a total of about 25% since being initially highlighted in a Hidden Opportunities report dated April 25, 2014 (versus a 15% increase in the S&P 500).

• With the stock continuing to trade at a discount to its SOTP fair value SWK investors can seemingly continue to realize further upside supported by improving internal execution as well as the optionality presented by a potential separation transaction.

• Considering peer group multiples and 2015E estimates, SWK’s CDIY, Industrial and Security segments can be valued at $71, $49 and $34 per share, respectively. On a sum of the parts basis, a value of $115 per share can be derived when accounting for net debt and corporate costs of about $40 per share.

On May 14, 2015, Danaher Corp. (NYSE: DHR) announced it has begun an exchange offer related to the split-off of its Communications business. The company’s Communications business is to be subsequently acquired by NetScout Systems, Inc. (NASDAQ: NTCT) in a Reverse Morris Trust (RMT) transaction. Danaher shareholders will own approximately 59.5% of the merged Netscout entity. For more details, please refer to The Spin-Off Report dated March 26, 2015. The exchange expires at 12:00 midnight, New York City time, on July 8, 2015.

Danaher shareholders have the option to exchange some, all or none of their shares of Danaher common stock for common units of Potomac Holding LLC, a Danaher subsidiary formed to hold Danaher’s Communications business (which will convert into shares of NetScout common stock) at a discount of 7 percent to the per-share value of NetScout common stock (approximately $107.53 of NetScout common stock for every $100 of Danaher common stock tendered), subject to an upper limit of 2.2522 Potomac Holding LLC common units for each share of Danaher common stock tendered in the exchange offer. Danaher expects to issue approximately 62.5 million common units of Potomac Holding LLC, resulting in Danaher shareholders owning approximately 59.5% of NetScout following the merger. The exchange offer and withdrawal rights are scheduled to expire at 12:00 midnight, New York City time, on July 8, 2015. If the exchange offer is not fully subscribed, then the remaining common units of Potomac Holding LLC owned by Danaher will be distributed on a pro rata basis to Danaher stockholders whose shares of Danaher common stock remain outstanding after the consummation of the exchange offer.

In addition to this upcoming split-off of its Communications business, Danaher announced on May 13 its intention to separate its science & technology and diversified industrials businesses into two independent, publicly traded companies via a tax-free spin-off to shareholders. Danaher also announced its intent to acquire Pall Corporation (NYSE: PLL). The PLL acquisition is expected to be completed by year end 2015, while the spin-off transaction is expected to be completed around the end of calendar year 2016. For more details, please refer to The Spin-Off Report FLASH dated May 13, 2015.

Based on NetScout’s current share price of $40.84 and $87.35 for DHR, $100 equates to 1.14 DHR and $107.53 equates to 2.63 shares of NTCT, so the split off implies participating DHR shareholders will receive 2.30 shares (the upper limit) of NTCT in exchange for each DHR share. If fully subscribed, Danaher shares will decrease by 27 million shares (62.5 million divided by the number of shares that are exchanged). If the split-off is not fully subscribed, Danaher’s share count would decrease by an amount equal to the fraction of 62.5 million that is subscribed, and the remainder of the 62.5 million NTCT shares would be distributed ratably among Danaher shareholders as a dividend, similar to a spin-off.

We have updated our fair value estimates for Danaher and NetScout to account for a fully-subscribed exchange. Notably, our revised fair value estimate for Danaher represents the current, composite Danaher (ex-Communications plus the Pall acquisition). Notably, this analysis does not segment the composite valuation for the planned Science & Technology and Diversified Industrials spin-off, given this transaction is not expected to occur until late 2016.

Our revised analysis is based on estimated C2015 EBITDA of $5,706 million for Danaher, which is comprised of $4,946 million for Danaher and $760 million for Pall. Applying a 14x EV/EBITDA multiple generates an implied enterprise value of $79,884 million for the business (versus our prior estimate of $62,952 million ex-Pall). The applied multiple represents a two-turns premium to the prior applied multiple, given recent expansion in the Life Sciences and Diagnostics space, coupled with the best-in-class acquisition of Pall. Notably, best-in-breed supplier Mettler-Toledo International Inc. (NYSE: MTD) trades at 17x EBITDA; Thermo Fisher Scientific, Inc. (NYSE:TMO), PerkinElmer Inc. (NYSE: PKI) and Waters Corp. (NYSE: WAT) at between 14x to 15x. Adding 59.5% interest for New Netscout (the merged entity) generates a total implied enterprise value of $79,884 million for consolidated Danaher (Danaher including Pall), or $102 per share. Assuming a fully subscribed exchange, the split-off will reduce DHR’s share count to 692 million from 719 million currently (62.5 million NTCT shares divided by the exchange ratio of 2.3). Our revised fair value estimate represents an upward revision to our prior $93 estimate (which did not include Pall) and 17% implied upside to the shares’ current price of $87.35. Danaher, ex-Communications can be fairly valued at $99 per share.

The fair value estimate for NetScout has been revised to $49 from $47 per share previously. Our revised estimate reflects a slightly reduced share count (103 million shares, versus 105 million previously), as well as the company’s most recently reported balance sheet for the quarter ended March 31, 2015. The revised valuation for NTCT represents 16% upside to the shares’ current price.

The above valuation analysis suggests the exchange offers compelling upside, with NetScout offering growth-oriented investors an industry-leading position in a niche market for end-to-end network, application assurance and security solutions. Moreover, from an operational perspective, NetScout should be able to improve Danaher’s Communications Business operating margin (currently approximately 24%) to its own industry-leading 80% level. Upon integration of the business’ global distribution channel and product portfolio, NetScout has a unique opportunity to become a best-in-class global application performance management player, a market sustainably growing revenues in the mid-double digits annually.

On May 13, 2015, Danaher Corp. (NYSE: DHR) announced its intention to separate its science & technology and diversified industrials businesses into two independent, publicly traded companies via a tax-free spin-off to shareholders. The transaction is expected to be completed around the end of calendar year 2016, subject to final Board approval, satisfactory completion of financing, and receipt of other regulatory approvals. Danaher is a global medical and industrial conglomerate consisting of technology, medical, science, and industrial products with a market capitalization exceeding $50 billion and revenue of $19.1 billion and $19.9 billion in F2013 and F2014 respectively (4% revenue growth). The company’s revenue mix consists of Test & Measurement (17% of 2014 revenue); Environmental (18%), which primarily consists of water quality instrumentation systems; Life Sciences & Diagnostics (36%), which consists of analytical instruments used by hospitals and laboratories; Dental (11%), and Industrial Technologies (18%).

The parent, a science and technology growth company, which will retain the Danaher name, generated approximately $16.5 billion in revenues in 2014, including Pall Corporation (NYSE: PLL), which the company separately today announced an agreement to acquire. Post-spin Danaher will consist of the company’s Environmental, Life Sciences & Diagnostics, and Dental segments and is expected to generate gross margin in excess of 50% and operating margin in the mid-teens, while 60% of sales are into the aftermarket channel.

SpinCo is a diversified industrial growth company, consisting primarily of Danaher’s industrial automation and test & measurement businesses, generating approximately $6.0 billion in revenues in the most recently completed fiscal year. The business is expected to generate gross margin of approximately 50%, operating margin in the high teens, and significant free cash flow generation.

Notably, in October 2014 Danaher announced plans to split off its communications test business, which is to be acquired by Netscout Systems (NASDAQ: NTCT) in a Reverse Morris Trust (RMT) transaction. This transaction is expected to be completed in the June to September timeframe. This business generated $835 million in C2014 revenues. For more details on this transaction, please refer to The Spin-Off Report dated March 26, 2015. Danaher shareholders will own approximately 60% of the merged Netscout entity.

Danaher has a 30-year-plus track record of deploying its considerable free cash flow (over $3 billion annually) in high-return acquisitions. More recently, management has been very vocal about its interest in larger deals, although speculation has largely centered on diagnostics companies such as Waters Corp. (NYSE: WAT), PerkinElmer Inc. (NYSE: PKI), and Agilent Technologies (NYSE: A) as potential targets. The acquisition of Pall, which was only yesterday reported to be in auction, strategically complements Danaher’s existing water filtration and purification business within its Environmental business segment. Danaher is to acquire all outstanding shares of Pall for $127.20 per share in cash, or a total enterprise value of approximately $13.8 billion (including assumed debt and net of acquired cash), or a multiple of 4.9x 2014 sales. Pall is a leading provider of filtration, separation and purification solutions that remove contaminants or separate substances from a variety of solids, liquids, and gases. The company generated revenues of $2.8 billion for its fiscal year ended July 2014, consisting of $1.5 billion from its Life Sciences segment and $1.3 billion from its Industrial segment. The acquisition is expected to be approximately $0.40 accretive to non-GAAP adjusted diluted net earnings per share in 2016. The filtration/separation market remains highly attractive, growing in the mid to high single digits annually with gross margins of 50%. The valuation, at approximately 20x estimated 2015 EBITDA of $682 million is similar to last year’s acquisition of Sigma –Aldrich by Merck (NYSE: MRK). Pall represents Danaher’s largest acquisition since acquiring Beckman Coulter in 2011. Danaher’s rival bidder was reported to be Thermo Fisher Scientific (NYSE: TMO).

The post-spin parent company can be compared with Medical, Life Sciences and Diagnostics, and Dental manufacturers including Dentsply International Inc. (NASDAQ: XRAY), Sirona Dental Systems Inc. (NASDAQ: SIRO), and Varian Medical Systems (NYSE: VAR), as well as water test and purification manufacturers such as Esco Technologies (NYSE: ESE). On an enterprise value to trailing sales basis, these companies trade at a multiple of 3.1x. Applying this multiple to C2014 revenues of $16,500 million generates an implied enterprise value of $51,150 million for post-spin Danaher.

The SpinCo can be compared with diversified industrial testing companies such as Anritsu (6754 JP), Cobham plc (COB LN), and National Instruments Corp. (NASDAQ: NATI). On an enterprise value to trailing sales basis, these companies trade at 2.8x. Applying this multiple to $5,165 million in C2014 revenues generates an implied enterprise value of $14,462 million for the SpinCo. The SpinCo revenue estimate nets out $835 million in sales that will be split off in the NTCT transaction. DHR shareholders will own 60% of NTCT following the split off, valued at $1 billion based on Netscout’s current market capitalization.

A pre-spin fair value estimate of $93 per share is derived from this preliminary exercise when accounting for $736 million in net debt and 708 million shares outstanding. This sum-of-the-parts fair value estimate represents 6.6% upside to the shares’ current price of $87.38.

On April 29, 2015, PPL Corporation (NYSE: PPL) announced that shares of Talen Energy Corporation (“Talen Energy”) will begin when-issued trading under the symbol “TLN WI” on May 18, 2015. As background, Talen Energy is the combination of the spin-off of PPL’s competitive power generation businesses, PPL Energy Supply, LLC and the combination of that business with the competitive power business (“RJS Power”) owned by affiliates of Riverstone Holdings, LLC. PPL shareholders will own 65% of Talen Energy’s outstanding common stock and affiliates of Riverstone the remaining 35%.

Shares of Talen Energy will be distributed on June 1, 2015, after the market close to shareholders of record as of March 31, 2015. Talen Energy will begin regular-way trading on June 2 on the NYSE under the symbol “TLN.” The CUSIP number for the Talen Energy common stock will be 87422J 105 when regular-way trading begins.

Based on shares of PPL common stock outstanding as of March 31, 2015, the distribution ratio is expected to be approximately 0.125 shares of Talen Energy common stock for each share of PPL common stock, or approximately 83.5 million shares. PPL is expected to announce the definitive distribution ratio promptly after the record date. The distribution is subject to satisfaction of certain conditions, including at least $1 billion of undrawn revolver or similar facility, available to Talen Energy and its subsidiaries.

The post-spin fair value estimate for Talen Energy has been revised to $54 per share (previously $7 per share), reflecting the 0.125 to 1 share distribution ratio. Talen Energy’s fair value is based on average values derived from comparable EPS, revenue, EBITDA, and asset-based multiples. The fair value estimate of $33 per share for post-spin PPL remains intact, resulting in a pre-spin sum-of-the-parts fair value estimate of $37. This fair value estimate represents 8% potential upside from the shares’ current price.

Notably, with PPL shares currently trading at approximately $34, Talen appears to be implicitly trading at under $2 per share based on an estimated $33 in value for PPL ex-Supply. This implies an EV/EBITDA multiple of 1.4x (excluding potential merger-related synergies), well below Independent Power Producer (IPP) peers such as Calpine Corp. Dynegy Inc. (DYN) and NRG Energy, Inc. (NRG), which trade at 8x-10x EBITDA. This implied valuation likely reflects the company’s lower free cash flow to EBITDA (owing to high levels of interest and CAPEX, and lack of deferred tax assets), and perhaps more importantly, the company’s relatively uncertain growth strategy. Unlike peers, Talen lacks a large retail or renewable platform and will be competing with private equity firms and other IPPs for acquisitions.

PPL reports 1Q15 earnings on May 7th and will host its earnings call at 8:30am ET – the dial-in number is 888-346-8683 or 412-902-4270.

Please see the PPL Spin-Off Report dated January 28, 2015, for further details.

Windstream Holdings Inc. (NASDAQ: WIN) completed the spin-off of Communications Sales & Leasing Inc. (NASDAQ: CSAL) on April 24, 2015. In initial regular-way trading, shares of WIN appear to be heavily discounting the company’s core operations. While it is conceded that WIN’s core business is facing difficulties as it attempts to transition from a residential competitive local exchange carrier (CLEC) to offer a more robust set of services, including high-speed broadband, cloud computing, and Internet protocol (IP) based services, the current valuation appears attractive for shorter term investors when considering the value of the 19.9% ownership stake in CSAL that WIN maintained. The fair value estimate for WIN is adjusted to $17 per share (previously $20 per share) based on a reduced EBITDAR (earnings before interest, taxes, depreciation, amortization, and rent) estimate of $1.709 million (previously $1.749 million), a taxed CSAL stake, and the application of a 6.0x multiple (a discount to the peer multiple of 6.5x).

WIN maintained a 19.9% ownership stake in CSAL, which it expects to divest within twelve months. At the current market price of $27.52, the 29.9 million shares of CSAL are worth $824 million ($8.17 per share), or $552 million ($5.48 per share) if the eventual sale is taxed at 33%. Adjusting the current WIN enterprise value of $6.4 billion for the taxed sale of CSAL shares, WIN shares are currently trading at 4.67x consensus EBITDA. The most comparable peers to WIN’s business include CenturyLink Inc. (NYSE: CTL) and Frontier Communications Corp. (NASDAQ: FTR), which trade at an average of 6.45x 2015 consensus EBITDA. While a discount to peers seems appropriate given WIN’s current declining business trends and the inclusion of a new $650 million annual rental payment to CSAL (see our published Windstream Spin-Off Report, dated December 30, 2014, for further information) a 28% discount (or 22% discount to the low end) appears overdone, particularly considering the consensus estimate already implies a 10% year-over-year decline in EBITDAR.

Approaching valuation for WIN, if it is assumed that WIN’s earnings decline an additional 10% beyond the current consensus forecast and accounting for rental expense of $650 million the company would generate $1.059 million in 2015 EBITDA. Applying a discounted 6.0x multiple to account for the current decline in WIN’s business as well as accounting for $5.189 billion in net debt and the $552 million stake in CSAL (tax adjusted), a fair value estimate of $17 per share is derived. Given the implied upside from the current market price, shares of WIN are recommended for purchase in the near term. Longer-term investors will be exposed to continued declines in WIN’s business; however they could also realize significant upside from the current share price if the company can stabilize earnings by growing its business services offsetting its declining legacy business.

• Today, LXU announced the intent to separate its Chemical and Climate Control businesses as well as explore a conversion of the standalone Chemical assets into a master limited partnership (MLP) once the upgrade to its El Dorado facility is complete in 2016.

• The company also added five new independent directors, of which three (Massimo, Mittag & White) were previously nominated by 8% holder Starboard Value, to an expanded thirteen member Board.

• The purview of LXU’s Strategic Committee, which was formed in June 2014, will now include a review of the company’s corporate governance and related-party transaction practices as well as its overall management structure; the committee’s findings are expected in conjunction with 2Q15 earnings results.

• While this announcement is roughly in-line, in terms of timing, with our initial thinking on the call option of senior notes as well as management’s more recent overtures it represents an important and more concrete development in a process we think will unlock significant value for shareholders.

• Our fair value is increased to $60 per share to include the optionality presented by LXU’s conversion of its Chemical assets into an MLP. (Note: our previous $50 base case valuation assumed a simple C-Corp. split). Considering peer group multiples and 2016E estimates, LXU’s Chemical and Climate Control segments can be valued at $62 per share and $18 per share, respectively. On a sum of the parts basis, a value of $60 per share can be derived when accounting for net debt and corporate costs of about $21 per share.

On April 6, 2015, Ventas, Inc. (NYSE: VTR) announced that the company’s Board of Directors had unanimously approved the spin-off of a portfolio of Post-Acute/Skilled Nursing (SNF) facilities into a publically-traded real estate investment trust (REIT). Separately, VTR acquired Ardent Health, a privately-held for-profit U.S. hospital provider, for $1.75 billion. The spin off transaction is expected to be completed in 2H 2015 with a Form 10 to be filed with the Securities & Exchange Commission (SEC) in April 2015. VTR shareholders are expected to receive one share of SpinCo for every four VTR shares owned. On a pro-forma basis, the annualized dividends of the combined entities are expected to increase by at least 10%.

SpinCo will own 355 triple net leased SNF’s operated by 44 private regional and local health-care providers in 37 states. VTR thinks that this market is largely neglected by the large-cap healthcare providers and that SpinCo will have the opportunity to be an active consolidator in a fragmented ~$120 billion market with solid demographic tailwinds. In terms of the latter, the number of people over the age of 85 is expected to grow to about 5% of the total U.S. population in 2050 (from about 2% today). SpinCo is projected to generate 2015 net operating income (NOI) of $315-$320 million and 2015 funds from operations (FFO) of $240-$245 million. SpinCo is expected to pay an annual dividend of $0.53-$0.55. The post-spin leverage ratio expected to be ~4.5x, including an unspecified dividend to be paid to the parent, while the EBITDARM coverage ratio will be about 1.8x. SpinCo’s leases will include annual escalators of about 2.3% and posses a weighted average term of about 10 years. Raymond Lewis, currently VTR’s President, will be the CEO of SpinCo and Douglas Crocker, VTR’s presiding director, will serve as non-executive chairman. SpinCo’s primary publicly-traded competitor is Omega Healthcare Investors (NYSE: OHI). (OHI acquired AVIV REIT (NYSE: AVIV) in October 2014; the $3.0 billion all-stock deal valued AVIV with a slightly above 6% capitalization rate and 16.2x estimated 2015 FFO created a platform with about 790 SNF properties.) OHI currently trades at about 14x 2015E FFO, which implies a SpinCo valuation of about $3.4 billion.

OpCo’s acquisition of Ardent Health, a top-ten hospital provider with about $2 billion in revenue and 2,045 beds, is expected to close in mid-2015 and contribute $0.08-$0.10 to normalized annual FFO (on a leverage neutral basis). Including the Ardent acquisition, OpCo is projected to generate 2015 NOI of $1.9 billion and 2015 FFO of $1.3 billion. The post-deal leverage ratio is expected to remain flat at 5.9x while trailing-twelve month occupancy is expected to rise to 85.1% (from 82.7%). Debra Cafaro, will remain chairman and CEO of the post-spin combined entity. Publically traded healthcare REIT comparables, such as HCP Inc., (NYSE: HCP), Health Care REIT Inc. (NYSE: HCN), Healthcare Realty (NYSE: HR) and LTC Properties (NYSE: LTC) current trade at 17.0x 2015E FFO, which implies a post acquisition value of about $22.1 billion for OpCo.

Thus, on a sum of the parts basis, pre-spin basis, VTR can be valued at about $25.5 billion or about $86 per share (versus the current share price of $77.05).

América Móvil, S.A.B. de C.V. (Ticker: AMXL MM, MXN 16.22 per share, Market Capitalization: MXN 1,097 billion—USD 72.8 billion based on an exchange rate of USD 1 = MXN 15.06), one of the world’s largest telecommunication companies by number of subscribers, announced on April 1st its intention to spin off its passive cellular infrastructure in Mexico, mainly comprising wireless towers. The company was added to The Global Spin-Off Radar in August 2014 due to the July 8th, 2014 announcement regarding the company’s intent to separate its cellular sites. The new company will be named Telesites S.A.B. On April 1st, América Móvil also declared an Extraordinary Shareholders’ Meeting for April 17th with regard to the proposed transaction—in which existing shareholders will receive one Telesites share for each América Móvil share owned. The spin-off is expected to be completed within the second quarter of 2015.

América Móvil is controlled by Carlos Slim Helú—one of the world’s richest people and the company’s Honorary Chairman. He and his family own almost 70 percent of the total shares outstanding. América Móvil operates in 18 countries in the Americas—including Mexico and the U.S.—mainly through its Telcel, Telmex and Claro brands, while it has recently started expanding in Europe. It has over 300 million accesses, including approximately 270 million wireless subscribers. It also offers landline, broadband and pay TV services. América Móvil’s main markets are Mexico (94 million accesses) and Brazil (103 million accesses).

América Móvil has a dominant market share in its home country, Mexico, effectively comprising a telecommunications monopoly. As such, its operating subsidiaries are considered “preponderant economic agents” and are subject to tighter regulations. In its July 2014 statement, the company’s Board of Directors decided to implement a strategic plan that would reduce its domestic market share below the 50 percent threshold required by law. That plan includes the sale assets to a “new and solid carrier” that will have the capital to make additional investments as well as the separation of its cellular sites “for their corresponding operation and commercialization to all interested parties”.

The new company will own approximately 10,800 wireless towers, and will gradually begin to service third parties. With more than 70 million wireless subscribers in a developing country with a population of 120 million, América Móvil should effectively guarantee sustainable and stable revenue for the spinco. Additionally, as Mexico’s largest telecommunication carrier divests other assets in order to lower its market share, new entrants will most likely use the existing infrastructure owned by Telesites.

As a valuation proxy, one can look at two US companies, Crown Castle International Corp (CCI US) and American Tower Corporation (AMT US). The former owns 41,800 towers in the US and Australia. The latter controls 104,160 towers, with 28,566 located in the US and the remaining abroad—primarily in emerging markets including Mexico. Both companies are structured as REITs, with Crown Castel International offering a 3.9 percent dividend yield and American Tower yielding 1.7 percent—a difference that can be attributed to CCI’s payout ratio (as defined by dividends dividend by funds from operations) that is double that of AMT.

Currently, Crown Castle International’s and American Tower’s enterprise value per tower stand at USD 978 thousand and USD 530 thousand, respectively. It appears reasonable that the market values AMT’s foreign assets at a discount to its domestic ones. Indeed, it is very unlikely that Telesites will ever command a similar valuation that implies an enterprise value between USD 6 and USD 8 billion. As an alternative, investors could “strip” the value of AMT’s US towers: Were such assets to be valued at par with Crown Castle International, they would have an enterprise value of USD 27.9 billion. Consequently, AMT’s 75,594 remaining towers would be valued at USD 27.3 billion, or USD 361 thousand per tower. Applying the same price to Telesites’ 10,800 towers, one arrives at a firmwide valuation of USD 3.9 billion (MXN 58.7 billion).

As another valuation proxy, one can look at recent wireless tower acquisitions in Mexico. In 2014, American Tower acquired 299 such units in Mexico for a consideration (excluding value added tax) of USD 37.7 million, or USD 126 thousand per share. Such a transaction can serve as a lower–end valuation estimate for Telesites, since the newly created entity should have a dominant position in its domestic market. The resulting enterprise value for Telesites is USD 1.4 billion (MXN 20.5 billion).

On March 27, 2015, The Madison Square Garden Company (NASDAQ: MSG) filed an initial Form 10 with the SEC confirming its intention to spin-off the company’s sports and entertainment business from its media business. The company had previously announced that it was exploring a possible separation. The spin-off, which would be conducted as a tax-free distribution of shares, is expected to be completed in 2015, and is subject to an effectiveness declaration of the company’s Form 10 filing, receipt of a private letter ruling from the IRS regarding the tax free nature of the spin off, and final Board approval.

MSG, which itself was spun out of Cablevision Systems Corp (NYSE: CVC) in 2010, announced on October 28, 2014, that it had received Board approval to explore a separation of its media and sports businesses from its live entertainment operations via a tax-free spin-off to shareholders. Concurrently, the company also announced a $500 million share repurchase authorization as well as the nomination of Nelson Peltz and Scott Sperling to the Board of Directors. On December 18, 2014, the company indicated that it was weighing alternative options, including the possibility of separating the company into three entities. In recent months, MSG had come under public pressure to improve shareholder value from activist investor JAT Capital Management, which disclosed a 7% stake in August 2014.

The company reports in three segments: (1) MSG Media; (2) MSG Sports; and (3) MSG Entertainment. MSG Media primarily operates the MSG and MSG+ networks and generated $676 million of revenue (about 40% of total revenue) and $342 million of adjusted EBITDA over the trailing twelve months. MSG Media’s peer group, which could include Time Warner Inc. (NYSE: TWX), CBS Corp. (NYSE: CBS), Viacom, Inc. (NASDAQ: VIA), Twenty-First Century Fox (NASDAQ: FOX), The Walt Disney Co. (NYSE: DIS), and DirecTV (NASDAQ: DTV), trades at approximately 11x trailing-12-month EBITDA. Applying this multiple implies an EV of $3.8 billion for the parent entity. (For context, News Corp.’s initial and subsequent stakes in The YES Network, which could be considered a close comparison to the MSG network, valued the entity at $3.0 and $3.8 billion, respectively.)

MSG Sports’ primary assets are the New York Knicks (NBA) and Rangers (NHL) teams but also include the NY Liberty (WNBA) as well as the Hartford Wolf Pack (AHL). The segment generated $612 million of revenue in F2014 (38% of the total) but was essentially breakeven from an EBITDA perspective. On a trailing basis, Sports generated $647 million in revenue and $17.8 million in EBITDA. The segment’s worth stems from the value of its sports franchises. To that end, a January 2015 valuation published by Forbes Magazine put the value of the Knicks and Rangers franchises at $2.5 billion and $1.1 billion. The reported value of the Knicks increased dramatically in 2014 as a result of the recent sale of the L.A. Clippers for $2 billion (Forbes reported the Knicks were worth $1.4 billion in 2014). Based on available information and comparisons, the enterprise value of the Sports segment could reasonably be estimated at $3.6 billion, which notably assigns no value to the Liberty or the Wolf Pack.

MSG Entertainment primarily owns iconic venues such as Madison Square Garden, Radio City Music Hall, The Beacon, The Chicago Theater, the Wang Theatre, and the Forum. The segment generated $301 million of revenue (or 18% of total revenue) in F2014, but posted operating and EBITDA losses of $13.5 million and $1.2 million, respectively. Entertainment generated revenue of $369 million and EBITDA of $14.6 million in the trailing twelve months. There are a dearth of pure-play comparisons for the entertainment segment, but a fair enterprise value of $258 million can be derived by applying the 0.7x EV/revenue multiple awarded Live Nation Entertainment (NYSE: LYV).

From the sum-of-the-parts enterprise value of $7.6 billion, we add net cash of $379 million and divide by shares outstanding of 76.8 million to arrive at a $104 per share fair value. (Optionality could exist from the potential monetization of air rights, the conversion of real estate assets into a real estate investment trust [REIT], and/or the exercising of the recent share repurchase authorization.)

On March 26, 2015, Windstream Holdings Inc. (NASDAQ: WIN) announced that the company’s Board of Directors has approved the spin-off of Communications Sales & Leasing Inc. (CS&L). CS&L will be structured as a real estate investment trust (REIT) and assets will primarily include copper and fiber distribution systems. Shares of CS&L will be distributed to shareholders of record (as of April 10, 2015) on April 24, 2015 after the market close. WIN shareholders will receive one share of CS&L for every five shares of WIN held as of the record date. CS&L will trade under the symbol “CSAL” on the NASDAQ, with “regular way” trading scheduled to begin on April 27, 2015. When-issued trading is expected to begin on or about the record date. CS&L expects to pay an annual dividend of $1.92 per share.

WIN will retain 19.9% of CS&L, which the company expects to divest within twelve months. Immediately following the CS&L spin-off, WIN will conduct a one for six reverse stock split, and expects to pay an annual dividend of $0.60 per share following the spin. Additionally, the company declared a cash distribution equivalent to a prorated portion of the current $0.25 quarterly dividend to WIN shareholders as of the record date. The distribution is expected to total $0.0659 per share (distributed April 24, 2015).

The assets to be transferred into the REIT will primarily include fiber and copper distribution systems, as well as some real estate and other fixed assets, representing less than 25% of WIN’s total asset base. Data-center assets will remain with WIN following the spin-off. The spin entity will also receive WIN’s residential competitive local exchange carrier (CLEC) business.

Moving forward, the REIT could become an industry consolidator, given an expected lower cost of capital and the advantages of being the first to implement a REIT structure with these kinds of assets. CS&L could prove to be an attractive source of financing for other owners of fiber and copper distribution systems looking to accelerate network investments.

The fair value estimate for CS&L of $29 per share remains intact and is derived from an average of estimates based on price to FFO, price to PP&E, and projected dividend yield. While the fair value remains unchanged, some underlying assumptions shifted slightly to account for current peer trading multiples and dividend yield. It can be expected that CS&L shares will trade at a discount to other triple net lease REITs given the uniqueness of the assets held by the REIT.

The fair value estimate for post-spin for WIN is revised to $20 per share (previously $25 per share). The lower valuation is based on reduced 2015 revenue and earnings growth expectations. The fair value estimate is based on an average of values derived from EV to EBITDA and free cash flow yield, applying a discounted multiple to account for current business trends, and incorporating the 19.9% ownership stake in CS&L.

On a pre-spin basis, shares can be valued at $9 per share, consisting of $1.89 per share for post-spin WIN shares and $7.23 per share of CS&L.

Despite the implied upside, shares of both entities are likely to see volatility post spin. New money investors are better served awaiting an attractive entry point in CS&L as the uniqueness of the REIT is likely to garner a discounted valuation compared to other REITs. Longer term investors may be rewarded if the company is able to become a consolidator of distribution systems or diversify its portfolio into other asset classes and shares are awarded a REIT multiple. Given current declining trends in revenue and EBITDA, combined with the high fixed cost lease expense, shares of WIN are not recommended following the spin.

Please see the Windstream Holdings Inc. Spin-Off Report (December 30, 2014) for further details.