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.

On March 13, 2015, the boards of directors of The E.W. Scripps Company (NYSE: SSP) and Journal Communications (NYSE: JRN) set the record dates related to the spin-offs of their respective newspaper businesses, as well as the payment of a special cash dividend for Scripps shareholders. Both Scripps and Journal shareholders of record as of the close of business on March 25, 2015, will receive shares in Journal Media Group (“JMG”), the independent newspaper company created by the spin-offs, payable upon the closing of the transactions. Separately, the Scripps board also declared a $60 million special cash dividend (which equates to $1.06 per share based on current shares outstanding), for Scripps shareholders of record as of the close of business on March 25, 2015, payable upon the closing of the transactions. The closing date of the transactions is currently scheduled for April 1, 2015. On the closing date, SSP and JRN will simultaneously spin off and merge their newspaper operations to form Journal Media Group and immediately merge their broadcast operations.

When-issued trading for Journal Media Group stock will begin on March 23, 2015. On that date, Scripps class A common shares will begin trading on an “ex-distribution” and “when issued” basis. Journal Communications shareholders who sell their shares before the closing date will be selling their right to receive the shares of Journal Media Group. Scripps shareholders who sell their shares before the closing date will be selling their right to receive the special cash dividend and the shares of Journal Media Group. As a result, from March 23, 2015, through the day prior to the closing, Scripps shares and Journal Communications shares will trade with “due bills.”
Journal Communications’ class A and class B shareholders will receive 0.5176 Scripps class A common shares and 0.1950 shares in Journal Media Group for each Journal Communications share. Scripps shareholders will receive 0.2500 shares in Journal Media Group for each Scripps class A common share and each Scripps common voting share. JRN shareholders will own approximately 31% of the merged SSP entity, with the Scripps family retaining control. SSP shareholders will own 59% of Journal Media Group, with JRN shareholders owning the remaining 41%.
For post-spin SSP, fundamentals in broadcast remain very healthy, with the company benefitting from an uptick in political advertising heading into the 2016 Presidential election season and a sizable retransmission revenue opportunity this year. Since the publication of the Scripps Spin-Off Report dated February 25, 2015, both Scripps and Journal Communications, Inc. (NYSE: JRN) have reported strong 4Q 2014 earnings results, with evidence of an early uptick in political advertising spending already in early 2015 as well as a general improvement in overall advertising spending.

Given evidence of improving broadcast fundamentals, we are revising our pre-spin SOTP fair value estimate for SSP to $29 per share, from $26 previously. This fair value estimate implies 11% upside from current levels. The pre-spin fair estimate is comprised of $24 from Scripps (from $21); and $5 from JMG. Following the transactions, Scripps and Journal Media Group can be fairly valued at $21 (from $18 previously), and $19, respectively.

For SSP, our revised target – which is based on applied comparable multiples of revenue, EBITDA, cash flow, assets, revenue, and EPS—primarily reflects the recent overall multiple expansion in the broadcast sector. Notably, our pre-spin SOTP fair value estimate of $29 for SSP implies a multiple of 10x 2015E EBITDA, a slight premium to broadcast comparable Gannett Co., Inc. (NYSE: GCI) at 8.3x, but in line with SSP’s 10-year historical average.

We remain constructive on pre-spin SSP shares and think there is incremental value associated with a more highly valued, purely broadcast stock currency and more flexibility around M&A, which is currently hampered by SSP’s newspaper exposure. We expect SSP to garner a higher multiple relative to broadcast peers due to the company’s healthy balance sheet and expected faster growth profile. With a combined company’s market share at 18% of U.S. households [well below peers such as Sinclair Broadcasting Group, Inc. (NASDAQ: SBGI) and Gannett at 39% and 31%, respectively], Scripps is one of the few broadcast companies with the cash flow and penetration potential to expand. In our view, the valuation should further expand as investors come to realize the accretive nature of this transaction, the above-average growth prospects of the company, and the financial flexibility for both internal product development and acquisition-related growth. Moreover, there are several fundamental catalysts for the post-spin parent company that could provide incremental upside beyond this fair value estimate. Scripps, as one of the last remaining broadcasters to renew retransmission rates from below-market to current rates, appears uniquely positioned to experience above-industry growth through 2016.

Given the difficult competitive environment, coupled with the significant strategic changes required to right-size the business for long-term sustainability. We expect considerable downward pressure in the post-spin shares, and would recommend liquidating post-spin positions until evidence of stability and operational improvement in the business. As the company validates the financial model, investors may come to appreciate the potential for free cash flow and the likelihood of further industry consolidation, which may support an expansion in trading multiples.

For more details, please refer to the Scripps Spin-Off Report dated February 25, 2015.

Please find an attached update to IRG’s Hidden Opportunity on LSB Industries Inc. (NASDAQ: LXU).

• LXU announced its Strategic Committee has concluded that management’s near-term focus should remain on executing its current operating plan. That said, the Board would continue to evaluate strategic alternatives, including a sale/spin of the Climate business as well the adoption of an MLP structure for its Chemical assets, over the next 12-18 months.

• Concurrently, LXU set 2017 financial goals. At Chemical, LXU targets 12% compound annual revenue growth (2014-2017) with operating and EBITDA margins of 20% and 30%, respectively. At Climate, the company seeks a 10% top-line CAGR with operating and EBITDA margins of 14% and 15%, respectively.

• The company also extended the deadline for the Starboard Value Fund, a 7.6% owner of LXU, to nominate directors for consideration at the 2015 Annual Meeting until March 9th.

• Given our thinking that any potential transactions were not likely to occur before the August 2016 call option on LXU’s senior secured notes this announcement does not materially change the time-horizon we had initially envisioned. That said, it does leave us incrementally more confident that the company will ultimately act to unlock significant value for shareholders. In the interim, investors stand to benefit from continued improvement in the company’s financial results through 2017.

• Considering peer group multiples and 2016E estimates, LXU’s Chemical and Climate Control segments can be valued at $52 per share and $18 per share, respectively. On a sum of the parts basis, a value of $50 per share can be derived when accounting for net debt and corporate costs of about $20 per share. (Optionalty for an additional $10 of upside exists in the event of an MLP conversion as our base case valuation assumes the Chemical business is split as a C-corp.)