On September 17, 2014, Agilent Technologies Inc. (NYSE: A) announced that shares of Keysight Technologies Inc. will be distributed on November 1, 2014, to Agilent shareholders of record as of October 22, 2014. Keysight will begin regular way trading on November 3, 2014, on the NYSE under the symbol “KEYS”. Shareholders of record will receive one share of KEYS for every two shares of A owned. Shares of both Keysight and Agilent will begin trading on a when-issued basis on October 20, 2014. Agilent also announced a quarterly dividend of 13.2 cents per share of common stock will be paid on October 22, 2014 to all shareholders of record as of the close of business on Sept. 30, 2014. Completion of the spin-off still requires an effectiveness declaration of the company’s Form 10 filings from the SEC. Separately, Agilent announced that Mike McMullen, senior vice president, Agilent, and president of the company’s Chemical Analysis Group (CAG), will succeed William (Bill) Sullivan as CEO on March 18, 2015. William Sullivan will remain as an advisor through the end of the company’s fiscal year, Oct. 31, 2015, when he will retire.

As noted in the initial Agilent Technologies Inc. Spin-Off Report (September 16, 2014), fair value calculations would be adjusted based on the finalized distribution ratio, capital structure, dividend policy and changes in company/industry fundamentals. Accordingly, the fair value for Keysight has been revised to $49 (from $25) to reflect the updated share count. The fair value is based on the median of comparable price-to-sales, price-to-earnings, and EV-to-EBITDA multiples, with a range of $48.04 to $52.10.

The post-spin fair value for A remains intact at $40 per share. Following the spin-off, Agilent shares should receive a higher multiple than those of Keysight given the company’s industry leadership position, reduced cyclicality, and better long-term growth prospects. There also appears to be potential for further appreciation, considering that improved execution should be able to drive above-market core revenue growth and earnings leverage and, in turn, narrow the valuation disparity relative to peers. Agilent’s peer group trades at 3.2x F2014 revenue projections, 22x earnings, and 14x F2014 estimated EBITDA. On a relative basis, Agilent shares appear undervalued at 19x forward earnings, a 14% discount to peers – essentially in line with their five-year historical average. In the near term following the spin-off, KEYS shares could experience some volatility, as a portion of the investor base might gravitate toward the stability and more focused end-market composition of the new Agilent. Moreover, while recently reported financial results appear encouraging, with a return to year-over-year growth, Keysight could again exhibit negative growth comparables, particularly as visibility remains generally very limited across the technology supply chain. Considering historical and comparable multiples on earnings, sales, and EV/EBITDA, and cash flow, Keysight can be fairly valued at $49 per share and New Agilent at about $40 per share, for a pre-spin sum-of-the-parts value of $65 per share. Please see the Agilent Technologies Inc. Spin-Off Report dated September 16, 2014 for further details.

On September 10, 2014, JDS Uniphase Corp. (NASDAQ: JDSU) announced a plan to spin off its optical components and commercial laser (CCOP) business into a separately traded public company. Shares in the new company, which has yet to be named, will be distributed to JDSU shareholders via a tax-free spin-off. The transaction is expected to be completed in the third calendar quarter of 2015 and is subject to satisfaction of closing conditions, including final approval from JDSU’s Board of Directors, receipt of tax opinions, and an effectiveness declaration of the company’s Form 10 filing with the SEC. Alan Lowe, president of the Optical Components and Commercial Lasers segment, is the CEO-designate of the spin-entity, while JDSU’s current president and CEO, Tom Wachter will continue to serve as CEO of the parent company. The company is holding an analyst day on September 11, 2014 at noon EST.

JDSU operates three business divisions, Optical Components and Commercial Lasers (CCOP), Network and Service Enablement (NSE), and Optical Security and Performance Products (OSP). The spin entity will be comprised of the current CCOP division, which generated F2014 revenues of $794.1 million, addresses a $7.4 billion market for optical communications (estimated 11% four-year CAGR) and a $2.5 billion market for commercial lasers (estimated 7% four-year CAGR). Products in this segment are primarily optical components and subsystems for the telecommunications market, and include transceivers, amplifiers, splitters, ROADMs (Reconfigurable Add-Drop Multiplexers) for WDM (Wave Division Multiplexing) applications, and passive components. Customers include major telecommunications, mobile and cable network operators and network equipment manufacturers. This segment reported 16% operating margin in F2014.

The parent company will retain the NSE and OSP segments. The NSE division addresses a $7 billion market growing at 6-8% annually, and focuses primarily on software and services used in the deployment and operation of next-generation Internet Protocol (IP) networks. NSE has one of the largest test instrument portfolios in the industry, and provides network and protocol and service assurance tools for testing in the laboratory, network and enterprise environments. Product families include PacketPortal, PathTrak, and SmartClass. The OSP segment addresses an approximate $1.1 billion market (also growing 6-8 percent annually) and consists of anti-counterfeiting solutions for currency authentication and high-value optical components for security, safety, electronics and other applications. Combined revenue for NSE and OSP was $949.5 million for F2014 (June), with blended operating margin of 11%.

With the timing of a recovery in the optical communications market still elusive, owing to a combination of over-provisioning and depressed capital spending at the major operators, the spin-off allows JDSU to divest this business and focus on a growing market opportunities in data center and cloud technologies. The new NSE company appears well-positioned to capitalize on the shift toward software-defined networks (SDN), an emerging architecture driving more intelligent and programmable application control. SDN architectures decouple traditional network functions, resulting in reduced operating costs and increased user flexibility. Demand for SDN technologies has been brought about by the pervasive deployment of data center virtualization technologies and the ensuing requirement for increased user, application and service-level visibility. This industry shift is significant because it is expected to cannibalize demand for traditional switching and routing equipment as more functionality is originated in software, as opposed to hardware. SDN is expected to influence an increasing portion of all network spending (as much as 30 to 40 percent over the next six years by some estimates), requiring that large end-to-end networking suppliers such as Cisco Systems (NASDAQ: CSCO) and Juniper (NASDAQ: JNPR) begin to develop products in this area.

Notably, the industry is seeing increased activity on the part of traditional test and measurement companies to develop and acquire NSE-related technology. In particular, life sciences diagnostics supplier Agilent Technologies (NYSE: A) recently announced plans to spin off its test and measurement subsidiary Keysight Technologies (expected November). For further details, please refer to The Spin-Off Report flash on Agilent dated September 19, 20013.

When deriving a potential valuation for the spin and parent entities, a sales-based multiple can be considered, owing to the somewhat inflated nature of earnings growth estimates for most of the communications technology sector, which is growing off of a cyclical low base. For the CCOP spin company, comparables include optical networking equipment suppliers such as Ciena (NASDAQ: CIEN), and component and subsystems companies Infinera (NASDAQ: INFN) and Finisar (NASDAQ: FNSR). Applying the peer average EV/sales multiple of 1.3x to estimated F2015 sales of $865.6 million results in an estimated enterprise value of $1.1 billion.

For the NSE parent company, comparables include test and measurement companies Ixia (NASDAQ: XXIA) and Spirent Communications (LON: SPM). Applying the peer average EV/Sales multiple of 2.3x to estimated F2015 sales of $1,0 billion, one can derive an implied enterprise value of $2.3 billion. That said, applying a broader comparable group multiple which includes CSCO and JNPR would imply a slightly lower valuation for the business. Although Cisco and Juniper are clearly broader networking suppliers with a significantly larger addressable market, they are representative of the opportunity within SDN and are key performance indicators for the NSE company. Based on this rough, preliminary exercise, a pre-spin sum-of-the-parts valuation of $16.41 per share of JDSU can be derived.

On September 8, 2014, Exelis Inc. (NYSE: XLS) announced that shares of Vectrus Inc. will be distributed on September 27, 2014, after the market close to shareholders of record as of September 18, 2014. Vectrus will begin regular way trading on September 29, 2014, on the NYSE under the symbols “VEC”. Shareholders of record will receive one share of VEC for every 18 XLS shares owned. Shares of Vectrus are expected to begin trading on a when-issued basis on or about September 16, 2014. VEC will incur $140 million in debt financing, of which $120 million will be used to fund a cash distribution to XLS. The transaction still requires an effectiveness declaration of the company’s Form 10 filings from the SEC. Vectrus management will host an information session on September 19, 2014, to detail the new company’s financial overview and strategic direction.

The spin company has a larger percentage of revenue tied to overseas troop deployments, and as a result is likely to see greater declines in earnings over the next two to three years. Consequently, XLS is expected to be awarded a higher valuation following the transaction, thereby lowering the company’s cost of capital. New XLS should also face meaningfully less exposure to the US Department of Defense (DoD), which is likely a positive for new contracts given the agency’s recent penchant for cutting costs following years of escalating government budgets. According to management, less than 50% of pro forma New XLS’ revenue is generated by the US Army, Navy, and Air Force, while more than 15% of revenue is derived from international clients and 6% from commercial markets.

As noted in the initial Exelis Spin-Off Report (May 12, 2014), the fair value calculations would be adjusted based on the finalized distribution ratio, capital structure, dividend policy and changes in company/industry fundamentals. The fair value for Vectrus has been revised to $43.50 (from $45) to reflect the share distribution ratio and revised net debt of $115 million (previously $186 million). The fair value estimate may be further refined following the September 19, 2014, analyst day.

The post-spin Exelis fair value has been revised slightly to $17 (form $18.50) to reflect revised revenue guidance excluding VEC’s contribution, interest expense and an updated share count. Please see the Exelis Inc. Spin-Off Report dated May 12, 2014, for further details.

On August 28th, Somfy SA (Ticker: SO FP, EUR 265.95 per share, Market Capitalization: EUR 2.08 billion—USD 2.74 billion based on an exchange rate of USD 1 = EUR 0.76) announced that is Supervisory Board approved in principal the demerger of its investment subsidiary, Somfy Participations. The standalone company will be floated on the Euro MRF market of the Luxembourg Stock Exchange. Shareholders will have the discretion to elect a distribution either in cash or in shares of the new company. The spin-off will lead to the creation of two pure-play companies that will also better cater to individual shareholders preferences. The transaction still requires a final approval by the Supervisory Board, which is expected in October, and by shareholders at a meeting that will be held in November. The spin-off is expected to be completed in December.

Somfy is organized under two segments; Somfy Activities comprises the operating company that manufactures and sells motors and controls for awnings, blinds, shutters and garage doors, while Somfy Participations is an investment company that acquires equity stakes in mid-market private companies. Somfy is owner-operated. More than 70 percent of the company is controlled by the Despature family, one of the richest in France, with a net worth of approximately USD 1 billion. Paul Georges Despature is Somfy’s President and three other members of the family serve on the Supervisory Board.

After the demerger, Somfy will be a pure-play home improvement company. It operates under eight brands in 60 countries. For the first six months of 2014, Somfy Activities generated net income of EUR 50 million. A peer group of European home improvement companies trades at a price-to-earnings multiple of 18.8x. Based on Somfy Activities’ 2014 run-rate net income, the company could have an equity value of EUR 1,882 million.

Somfy Participations will be an investment holding company. It should be noted that it does not invest outside capital. Its acquisitions are funded with shareholders’ equity and debt. Its investments usually range between EUR 15 million and EUR 100 million, and it is willing to cooperate with other private equity groups. Post spin-off, the size of Somfy Participations will be smaller than it is as a business segment of Somfy. That is because its 34 percent stake in Italian company FaaC —the portfolio’s largest, based on sales— will remain with the parent company due to the similarities in their operations. Additionally, the company has received an offer for its 46 percent stake in CIAT—its second largest company by revenues—an entity that will most likely be excluded as well.

During the first half of 2014, Somfy generated EUR 4.4 million of net income from discontinued operations that can be used as a proxy for Somfy Participations1. Based on the 13.8x average price-to-earnings multiple of several European investment holding companies, Somfy Participations could be valued at EUR 121 million after the spin-off. One could also value such a company based on its net assets. Net assets held for sale as of June 30th, 2014, stood at EUR 260 million. Based on the average price-to-book multiple of 1.04x, Somfy Participations could have a market capitalization of EUR 271 million. The sum-of-the-parts valuation for Somfy, prior to the spin-off, ranges from EUR 2,003 million to EUR 2,153 million.

Of note is the Despature family’s interest in such a spin-off and the implications to shareholders. Firstly, having a controlling shareholder who owns 70 percent of a circa EUR 200 million company will hinder liquidity and could result in a trading discount. Secondly, a privatization of Somfy Participations appears reasonable; it is a small company that can be acquired by the Despature family with a minor cash outlay and serve as their private investment vehicle. However, while strategically reasonable, such a transaction will most likely conflict with French laws regarding preferential tax treatment for spin-offs.

On August 31st, PORR AG (Ticker: POS AV, EUR 49.97 per share, Market Capitalization: EUR 729 million—USD 944 billion based on an exchange rate of USD 1 = EUR 0.77) announced its proposal to demerge its real estate business into a separate listed entity that will be renamed PIAG Immobilien AG. The rationale for the spin-off is that it will allow for the creation of two pure-play companies, with PORR AG focusing on its core construction business while the spin entity becomes an independent real estate company. The details of the spin-off have not been determined yet, but the transaction may be completed within 2014.

PORR AG is one of Europe’s oldest construction and engineering companies, with its creation as well as stock listing dating back to the 19th century. The company currently offers building and infrastructure construction as well as civil and environmental engineering services. It derives more than half of its revenues from Austria, with other important markets comprising Germany, Poland and the Czech Republic. Karl-Heinz Strauss, PORR’s CEO since 2010, is one of the company’s largest shareholders; in 2012, his investment vehicle purchased a 38 percent stake in the company from B&C Group and UniCredit Bank of Austria. Currently, approximately 55 percent of the shares are controlled by a syndicate formed between Strauss Group and Ortner Group. Since 2011, PORR has embarked on a restructuring of its operations that has been completed. However, the company is still transforming itself. In April 2014 it raised EUR 119 million in an equity offering—increasing its sharecount by approximately 30 percent—and in July 2014 it acquired an additional 25 percent stake1 in real estate developer UBM Realitätenentwicklung AG (Ticker: UBS AV).

PIAG Immobilien will be comprised of the STRAUSS and PARTNER group, non-core real estate of PORR, and the company’s stake in UBM. After the demerger, a mandatory takeover offer will be made to shareholders of UBM pursuant to the Austrian Takeover Act. The new company is projected, according to PORR, to have an asset base exceeding EUR 800 million, equity between EUR 150 million and EUR 200 million, revenues above EUR 400 million and EBITDA of approximately EUR 30 million.

Of note is PORR’s statement of a formation of a “net debt-free pure-play “Constructor”. As of June 30th, 2014, the company had EUR 403 million in net debt. That amount includes the cash raised in April of the same year, and will increase by EUR 36 million—the cash outlay for the UBM stake acquisition. One should be concerned, or at least wonder, if the management intends on transferring more than EUR 400 million in net debt to the new entity. The projected figures of EUR 800 million in assets and less than EUR 200 million in equity suggest so. While real estate companies do have the ability to absorb a significant amount of debt, the resulting net debt-to-EBITDA ratio will exceed 10x. A scenario in which PORR is essentially offloading debt to the demerged entity in order to de-risk its construction business and potentially increase shareholder value is plausible. It is noteworthy that PORR currently trades at a price-to-earnings multiple of approximately 11x and an enterprise value-to-EBITDA multiple of less than 7x, compared to 17x and 8x for its European peers, respectively. Thus, a multiple expansion could very well lead to a higher valuation for the post-spin PORR even compared to its current market capitalization.

On the other hand, one would notice that revenues in the real estate business have more than doubled since 2011—from EUR 44 million to EUR 98 million—and pre-tax profit turned positive in 2013 for the first time during the same period. That performance, along with the acquisition of UBM, would suggest that PIAG Immobilien is in a growth trajectory rather than in a death spiral. Consequently, further information would be required in order to determine the actual rationale and motive for the transaction, which will inform the analytical approach toward an evaluation of each company.

On September 3, 2014, Federal-Mogul Holdings Corp. (NASDAQ: FDML) announced a plan to spin off the company’s Motorparts division into a separately traded public company. Shares in the new company, currently referred to as Federal-Mogul Motorparts, will be distributed to FDML shareholders via a tax-free spin-off. The transaction is expected to be completed in 1H 2015 and is subject to receipt of a private letter ruling from the IRS, or opinion from counsel, as to the tax-free status of the spin-off, and an effectiveness declaration of the company’s Form 10 filing with the SEC. FDML is majority-controlled by Icahn Enterprises (80.7%); Carl Icahn serves as FDML’s Chairman of the Board.

FDML currently operates under two divisions, Powertrain and Vehicle Components Solutions. The businesses largely serve differing customer bases, with the Powertrain business focused on light, medium, and heavy-duty vehicle and industrial engine original equipment manufacturers. Products are generally specially engineered into powertrains and include self-lubricating bearings, pistons, and spark plugs, among others. Products can be co-developed with customers, providing long-lead times and long-term supply contracts. The business competes with few other specialty engineering component makers and is thought to have high barriers to entry.

In contrast, the Vehicle Components (Motorparts) sells into large retail and warehouse distributors. The Vehicle Components business sells original equipment focused on braking, chassis, and wipers, as well as into the aftermarket. Motorparts brands include Champion, a well known spark plug brand, MOOG, maker of steering and suspension related products, and ANCO, maker of premium wiper blades, among others. Vehicle Components competes with a variety of other aftermarket suppliers in a highly fragmented marketplace.

Icahn has held majority control of FDML since the company emerged from bankruptcy in 2008, when the investment fund swapped bonds for equity, increasing Icahn’s ownership to almost 76% from approximately 25%. The fund has since increased its stake to 80.7%. At the time FDML emerged from bankruptcy, Icahn was quoted as saying that FDML could be an attractive target for private equity, since non-core brands could be sold off and acquisitions could be made to solidify the core business. The company has made several acquisitions and divestitures in recent years, supporting Icahn’s previous comments – including the recently completed purchase of a friction material business from Honeywell International Inc. (NYSE: HON) for $155 million (0.95x trailing revenue and 8.6x trailing EBITDA). In 2013, FDML completed a $500 million rights offering, with proceeds used to refinance indebtedness.

Given Motorparts peers trade at a higher multiples than Powertrain peers, the separation may make sense for the Motorparts business to have its own capital structure, as the lower cost of capital could be used to fund strategic acquisitions given the fragmented industry. In 2013, the Motorparts business generated revenue of $4.2 billion, representing a 6% year over year increase, and operated with a 9.1% EBITDA margin. Assuming a similar revenue growth, the spin entity would generate $3.0 billion in revenue in 2014. The Motorparts business could be compared to other aftermarket suppliers such as Denso Corp. (6902 JP), which currently trade at approximately 0.9x 2014 estimated revenue. Applying that multiple to spin company sales of $3 billion derives an enterprise value of $2.7 billion.

The parent company will retain the Powertrain business; peers include Dana Holding Corp. (NYSE: DAN) and American Axle & Manufacturing Holdings Inc. (NYSE: AXL), which currently trade at approximately 0.7x 2014 consensus revenue. Assuming similar year-over-year revenue growth for the Powertrain business of 2.4%, it is estimated that the parent company will generate $4.4 billion in sales in 2014. Applying the peer multiple results in an enterprise value of $3.1 billion. Based on this rough, preliminary exercise, a pre-spin sum-of-the-parts valuation of $24 per share of FDML can be derived. It should be noted that this exercise does not take into account increased corporate costs for the spin entity to operate as a standalone public company.

On August 19th, BHP Billiton Group (Dual-listed structure—BHP Billiton Limited, Ticker: BHP AU, AUD 38.13 per share, Market Capitalization: AUD 197.2 billion and BHP Billiton Plc, Ticker: BLT LN, GBp 1,983 per share, Market Capitalization GBP 110.3 billion) announced its intention to separate its non-core assets into a newly created company (“NewCo”) through an in-specie distribution of shares to existing shareholders. The new company will have a primary listing on the Australian Securities Exchange and a secondary listing on the Johannesburg Stock Exchange. Given that BHP Billiton currently maintains a dual-listed structure—that will remain in place following the spin-off—shareholders of the UK listed stock may face regulatory and other hurdles in owning an Australia-traded security1. The rationale for the spin-off is that it will allow BHP Billiton to simplify its portfolio by reducing the number of assets it owns and by allowing it to focus on the core commodities that are responsible for the majority of its operating profit. The demerger is subject to customary approvals, including confirmation of demerger tax relief by the Australian Taxation Office, listing approval from the stock exchanges and shareholder approval, and is planned for mid-2015…

On July 31, 2014, after the market close, Cash America International Inc. (NYSE: CSH) filed a Form 10 with the SEC formalizing the company’s plans to spin-off its online consumer lending business, to be named Enova International Inc. The filing follows the April 2014 disclosure that CSH was reviewing a potential spin-off the online focused business, and a failed attempt to take Enova public in July 2012. The company plans to distribute 80% of the entity’s common stock via a tax-free distribution of shares to CSH shareholders. Enova intends to apply for listing on the NYSE under the symbol “”ENVA””. The transaction is subject to final approval by CSH’s board of directors, an effectiveness declaration of the company’s Form 10 filing, and the receipt of a private letter ruling from the IRS. David A. Fisher, currently the CEO of the online business, will carry on his role at Enova following the spin-off, which is expected to occur in late 2104 or early 2015. The potential for CSH to spin-off of Enova has been highlighted in The Spin-Off Report Radar Screen since May 2014.

CSH is considered the largest pawnshop operator and pawn loan provider in the world, with over 1,000 locations in the US, United Kingdom, Australia, and Mexico. The post-spin parent company will retain its declining Retail Services business. The separation likely makes sense given that Enova is a higher-growth, stronger-margin, and asset-light online business that will likely garner a higher multiple as a standalone company, thereby generating shareholder value. In addition, management indicated that a separation would allow each business to more efficiently allocate resources and overhead as well as better navigate distinct regulatory environments and more keenly focus on the respective growth strategies.

According to Enova’s Form 10 filing, the company generated revenue and EBITDA of $764 million and $162 million, respectively, in 2013 (21% margin). Through the first half of 2014 revenue and EBITDA have increased 15% and 56%, respectively. The sharp year-over-year increase in EBITDA is a function of a growing consumer loan portfolio and the fixed cost nature of the online lending business. However, management has commented that it expects growth to temper in 2H 2014 primarily due to product shift in foreign e-commerce divisions. During 2013, Retail Services generated revenue of over $1.0 billion and EBIT of $144.3 million (14% margin). CSH’s retail business can be expected to decline about 5% while E-Commerce could rise roughly 10%, exhibiting a slight deceleration versus 1H 2014 trends. Enova’s margins can be expected to decline marginally year-over-year due to increased standalone corporate costs, while Retail margins, as discussed by management on a recent conference call, will remain under pressure in 2014 and could be forecast to deteriorate by about 300 basis points.

Under these assumptions, Enova could generate revenue and EBITDA of $840.5 and $168.1 million in 2014. Enova could be compared to First Cash Financial Services (NASDAQ: FCFS), which trades at 11.1x 2014E EV/EBITDA, implying an EV of about $1.9 billion, or $47 per share, assuming $500 million in net debt. For context, the E-Commerce segment has more than doubled EBITDA since 2011, when CSH planned to IPO its online business and valued the subsidiary at roughly $833 million based on a price tag of $500 million for 60% of the subsidiary.

Post-spin CSH could be forecast to generate 2014 EBITDA of $71 million (including $85 million in corporate costs). The parent entity could be compared to EZCORP Inc. (NASDAQ: EZPW), which trades at 5x 2014E EV/EBITDA, and DFC Global Corp. (NASDAQ: DLLR), which was acquired by Lone Star Global Acquisitions in June 2014 for 6x 2014E EBITDA. Applying the lower-end multiple of 5x, and including the 20% stake in Enova, implies a post-spin CSH enterprise value of $628 million, or $18 per share when assuming $100 million in net debt remains with the parent. Through this rough, preliminary exercise a pre-spin sum-of-the-parts fair value of $56 is derived.

On July 31, 2014, The E.W. Scripps Co. (NYSE: SSP) and Journal Communications Inc. (NYSE: JRN) announced that the companies have agreed to merge their respective broadcasting operations, spin-off their respective newspaper businesses, and subsequently merge the newspaper operations into a standalone publicly traded entity. The merged newspaper company will adopt Journal Media Group as a corporate name. JRN Class A and Class B shareholders will receive 0.5176 Class A SSP shares and 0.1950 shares in Journal Media Group. EWS shareholders will receive 0.2500 shares of Journal Media Group for each Class A and Common Voting share owned. 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%.

SSP is expected to have net leverage of about 2x, while Journal Media will be capitalized with $10 million of cash and no debt. Tim Stautberg, current senior vice president of Scripps newspapers business will become CEO of Journal Media Group, while Rich Boehne will remain CEO of SSP. The transactions have been approved by SSP’s and JRN’s boards of directors, however still require Scripps Common Voting and JRN shareholders’ approval. The transactions, which are expected to be tax-free to shareholders, will occur simultaneously and are expected to close in 2015. Prior to the transactions, SSP shareholders will receive a $60 million special dividend, or $1.07 per share based on the current shares outstanding.

The transaction follows similar spin-offs from other media companies that have separated broadcasting from publishing assets. The publishing industry has struggled to maintain revenue as advertising budgets are increasingly focused on targeting the online and television mediums. Declining newspaper industry subscriber counts have recently been offset by increased subscription prices, however companies have struggled to monetize digital versions of traditional print publications. Alternatively, broadcasters have benefited from increased retransmission and political advertising cycle revenue streams. Consequently, broadcasting focused companies trade at premium multiples to publishing entities. Recent similar transactions have included Time Warner Inc. (NYSE: TWX) spinning off publisher Time Inc. (NYSE: TIME), Tribune Media Company spinning off publisher Tribune Publishing Company (NYSE: TPUB) and publishing News Corp. (NASDAQ: NWSA) spinning off Twenty-First Century Fox Inc. (NASDAQ: FOXA).

Journal Media Group will publish daily newspapers in 14 markets, with Sunday circulation exceeding 1 million subscribers as well as control associated digital assets. Journal Media would have generated revenue of $525-$545 million, and a combined EBITDA of approximately $55-$60 million in 2014 if the transaction had occurred at the end of 2013. Journal Media Group can be compared to other local publishers such as A.H. Belo Corp. (NYSE: AHC), which currently trades at 7.7x consensus 2014 EBITDA. Larger newspaper publishers, such as The New York Times Co. (NYSE: NYT) and News Corp. (NASDAQ: NWSA) trade at 6.9x and 8.7x, respectively. Applying a peer multiple of 7.7x to 2014E EBITDA results in a market capitalization range of $434-$472 million, or approximately $18 per share based on 25 million shares outstanding post-spin.

Broadcasting operations will retain the E.W. Scripps moniker. Post-merger SSP is expected to become the fifth-largest independent TV group and would have generated 2014 revenue of $815-$830 million and combined segment profit of $190-$200 million if the merger occurred in 2013. The company will operate 34 television stations in 24 markets and 35 radio stations eight markets. Television markets include Arizona, Colorado, Florida, Michigan, Missouri, Nevada, Ohio and Wisconsin, which are expected to benefit from political advertising cycles. SSP’s broadcast stations will include 15 ABC affiliates. Broadcasting peers include Nexstar Broadcasting Group Inc. (NASDAQ: NXST), LIN Media LLC (NYSE: LIN), and Media General Inc. (NYSE: MEG), which currently trade at 10.3x 2014 consensus EBITDA. Applying the peer multiple to the mid-point of expected EBITDA results in a market capitalization of $1.1 billion, or $13 per share, assuming 85 million shares outstanding at the time of the transaction. Based on this rough, preliminary exercise, and including the $60 million special dividend to SSP shareholders, a pre-spin combined market capitalization of $1.6 billion is derived, roughly equaling the combined market capitalization of SSP and JRN following the transactions announcement.

On July 29, 2014, Windstream Holdings Inc. (NASDAQ: WIN) announced plans to spin off certain telecommunications network assets into a standalone publicly traded company via a tax-free distribution of shares. The new company will be structured as a real estate investment trust (REIT) and, as such, will be required to distribute at least 90% of annual taxable income in the form of dividends. Management expects that post-separation WIN’s annual dividend will be $0.10 per share, while the REIT will have an annual payout of $0.60 per share (assuming a 1:1 distribution ratio). The company has received a private letter ruling from the IRS regarding the tax-free nature of the spin-off and the ability of certain assets being transferred to qualify for inclusion in a REIT. The spin-off still requires final board approval, an effectiveness declaration of a Form 10 filing, and certain regulatory approvals. The transaction is expected to be completed in 1Q 2015.

WIN is a provider of residential and business telecommunications services, primarily to rural customers. The company operates a fiber network of approximately 118,000 miles, and 26 data centers in 48 states and the District of Columbia. Over the past several years, Windstream has transformed its core business from a residential competitive local exchange carrier (CLEC) to offer a more robust set of services including high speed broadband, and cloud computing and Internet protocol (IP) based services. The transformation was aided by several recent acquisitions, including the $2.2 billion acquisition of PAETEC Holding Corp. in 2011, which increased the company’s exposure to medium and large sized business customers. The legacy business has seen increased competition, however WIN now generates 73% of revenue from broadband related services.

The assets to be transferred into the REIT will primarily include WIN’s 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. The REIT will incur approximately $3.5 billion in new debt, the proceeds of which will be used to retire $2.2 billion in current WIN debt and fund a cash distribution of $1.2 billion to WIN.

Assets transferred to the REIT entity will be leased back to WIN on a triple-net basis and are expected to generate initial annual rental income of $650 million. Triple-net leases typically require the lessee to be responsible for most capital costs associated with the property, including real estate taxes, insurance and maintenance expenses. WIN’s lease will include an annual lease escalation clause that will begin in year four at 0.5%. The transaction appears to be transformative for the telecommunications industry. Moving forward the REIT could become an industry consolidator given an expected lower cost of capital and first mover advantage of implementing a REIT structure. The REIT company could be an attractive source of financing for other owners of fiber and copper distribution systems looking to accelerate network investments.

Following the separation management expects annual REIT operating expenses to total approximately $20 million. The REIT structure could be compared to other triple net lease operators despite the differences in anchor tenants as the long-term lease agreements should provide fairly predictable revenue and cash flow. Triple net lease REITs, such as Gaming and Leisure Properties Inc. (NASDAQ: GLPI), National Retail Properties (NYSE: NNN) and others, across a variety of industries, average approximately 15x 2014 consensus EBITDA. If WIN’s REIT operations were to be valued in line with triple net lease operators, a post-spin fair value of $10 per share would be derived.

WIN will continue to operate in much the same fashion as it currently does, with an additional operating expense of rental payments to the REIT. As such the peer group should largely remain the same and include CenturyLink Inc. (NYSE: CTL) and Frontier Communications Corp. (NASDAQ: FTR), which on average traded at 6.5x 2014 estimated EBITDA prior to this morning’s announcement. The consensus estimate forecasts EBITDA of $2.2 billion in 2014 for pre-spin WIN. Adjusting for incremental rental expense, and applying the peer group multiple results in a fair value per share of $8 post-spin. It should be noted that the transfer of assets to the REIT and incremental rental expense may result in a discounted valuation multiple versus peers. Valuing post-spin WIN at 6.0x 2014E EBITDA results in a fair value of $7 per share. Based on this rough, preliminary exercise a pre-spin fair value of $17 per share could be derived.