On July 15, 2014, Tribune Company (OTC: TRBAA, TRBAB) announced shares of Tribune Publishing Co. will be distributed on August 4, 2014, with regular way trading scheduled to begin on the NYSE on August 5, 2014, under the ticker “TPUB”. TRBAA is expected to separate 98.5% of Tribune Publishing through a 1:4 distribution to Tribune Co. Class A and Class B shareholders, and warrant holders of record as of market close on July 28, 2014. TRBAA will maintain a 1.5% interest in Tribune Publishing. Following the separation, Tribune Company will change its name to Tribune Media Company. Trading on a “when-issued” basis is expected to commence on or about July 24, 2014. TRBAA has already received final Board approval and a private letter ruling from the IRS regarding the tax-free nature of the transaction. The separation still requires an effectiveness declaration of the company’s Form 10 filing from the SEC.

Tribune Publishing will be composed of major newspaper publications, including the Los Angeles Times, Chicago Tribune, Hartford Courant, the Sun Sentinel (Miami), and Orlando Sentinel, among others, and will operate over 60 affiliated websites and mobile applications. TPUB generated revenue of $1.8 billion and EBITDA of $178.8 million in 2013. With advertising sales expected to decline further, offset by reduced headcount, the company could generate 2014 EBITDA of $175 million (down roughly 2% year-over-year). Based on a peer group 2014 EV/EBITDA multiple of 6.9x and anticipated net debt position of roughly $301 million, Tribune Publishing is valued at $36 per share, or on a pre-spin basis $9.07 per share (previously $7.04 per share). The increase is a result of an increased peer multiple of 6.9x (previously approximately 5.5x), partially offset by a lower forecasted EBITDA of $175 million (previously $193 million).

Tribune Media Company will operate 39 local television stations, as well as WGN America, and will hold equity interests in companies, including the Television Food Network and CareerBuilder, among others, and assorted real estate assets. The Broadcasting business is likely to receive a higher multiple given its stronger margins and better growth prospects due to increasing retransmission fees from cable companies and increasing advertising spend. In addition, synergies related to the $2.7 billion acquisition of Local TV LLC in December 2013 are expected to increase annual EBITDA by over $100 million over the next five years.

Post-spin TRBAA can be valued on a sum-of-the-parts basis considering individual values for the Broadcasting segment, equity investments, owned spectrum, and the 1.5% ownership stake in TPUB. The fair value estimate for post-spin TRBAA is modestly increased to $80 per share (previously $79 per share); however the underlying assumptions have changed.

For the Broadcasting business, the segment generated 2013 revenue of over $1 billion and EBITDA of $375 million. According to management, during an election year Local TV can generate $100 million in political advertisements while Tribune stations can generate approximately $33 million (based on the 2012 presidential election). For 2014, assuming Broadcasting EBITDA remains flat year-over-year and considering the contribution from Local TV of $240 million, anticipated synergies of $50 million, contribution from political advertisements of $130 million, and higher retransmission fees of $50 million, the segment could generate 2014 EBITDA of $845 million. Based on the average enterprise value implied by 2013/ 2014 EBITDA multiples, the Broadcasting segment could be valued at $7.9 billion.

During 2013, the company’s equity investments made distributions to Tribune totaling $208 million. Assuming a 10% yield, these investments could be valued at approximately $2.1 billion. TRBAA’s spectrum is attributed a value of $803 million based on historic spectrum action pricing and owned spectrum (please see the initial Tribune Company Spin-Off Report, dated January 7, 2014, for further details). Based on the above derived enterprise value for TPUB, TRBAA’s ownership stake in Tribune Publishing can be valued at $18 million. Accounting for net debt of $2.8 billion following the $275 million cash distribution to be received from TPUB, a post-spin fair value estimate of $80 per share is derived for TRBAA (previously $79). On a pre-spin basis, consolidated Tribune has a fair value of $89 per share (previously $86). Please see the Tribune Company Spin-Off Report dated January 6, 2014, for further details.

On June 30, 2014, after the market close, Weyerhaeuser Company (NYSE: WY) set its final exchange ratio related to split-off of its real estate business, WRECO, which will merge with TRI Pointe Homes Inc. (NYSE: TPH) in a Reverse Morris Trust transaction. WY shareholders electing to participate in the split-off will receive 1.7003 shares of WRECO for every share of WY exchanged. Upon completing the transaction, each share of WRECO will be exchanged for 1.297 shares of TPH. WY shareholders electing to exchange their shares will receive $1.045 worth of TPH shares for every $1.00 of WY shares tendered. Based on the exchange rate formula, the WY for WRECO exchange rate would have exceeded the upper limit of 1.7003. Because the upper limit is in effect, the exchange offer has been automatically extended until 12:00 midnight, New York City time, on July 2, 2014.

WY shareholders executing the exchange offer will own 129.7 million new shares of TPH, or approximately 80% of the newly merged company. Given the exchange ratio of 1.7003, Weyerhaeuser will reduce its share count by 58.8 million shares to 526.5 million shares outstanding (previously estimated at 506 million). The fair value for post-split WY remains at $32 per share; however some underlying assumptions have changed reflecting the updated share count reduction, adjustments to 2014 expected EBITDA, and peer group multiples since the initial Weyerhaeuser Spin-Off Report, dated March 11, 2014. WY’s post split-off fair value is based on a sum-of-the-parts valuation.

WY timberland assets are valued at an average of 2.1x assets and 1.85x owned acreage. The Cellulose Fibers and Wood Products segments are each valued on an average of respective peer multiples of 2013 sales, 2014E EBITDA, and 1.0x assets. The two segments are expected to generate 2014E EBITDA of $353 million and $574 million, respectively, assuming flat year-over-year results. Corporate costs are capitalized at approximately 6x. WY will receive a cash payment of $739 million from WRECO in relation to the split-off, reducing WY’s net debt to $3.8 billion.

The fair value estimate of $18 per share for TPH remains intact. Please see the initial Weyerhaeuser Co. Spin-Off Report (March 11, 2014) for further details.

On June 26, 2014, QEP Resources Inc. (NYSE: QEP) filed a Form 10 to separate its midstream assets into a standalone public company, to be called Entrada Midstream Inc. The company is expected to list on the NYSE and trade under the ticker “EMID”. Entrada will be comprised of a 55.8% interest (including the 2% general partner interest inclusive of incentive distribution rights) in QEP Midstream Partners LP (NYSE: QEPM). QEP will retain its natural gas and crude oil exploration and production (E&P) operations. The transaction is expected to be completed in 2014. The spin-off still requires an effectiveness declaration of the company’s Form 10 filing, a favorable opinion from counsel on the tax-free status of the separation, and final Board approval.

Activist investor Jana Partners LLC, which owns approximately 8.9% of QEP, issued a letter to management in October 2013 urging that a special committee be established to explore a full spin-off of QEP’s interest in the midstream assets. The company responded that it welcomed shareholder input and would seek strategies to lift shareholder value. In May 2014 QEP announced that it had sold non-core E&P assets located in the Midcontinent and Williston Basin for $807 million.

QEP was spun off from natural gas utility Questar Corp. (NYSE: STR) in 2010. The stock is roughly flat since completion of the separation. Over the same period, the S&P Oil and Gas Exploration Index returned nearly 115%, although this may be a specious comparison, as the index is weighted toward global oil producers. QEP is primarily a Rockies and Midcontinent natural gas producer. About 63% of proved reserves at year-end 2013 were natural gas.

QEP operates midstream systems typically in near proximity to its E&P assets, including about 2,200 miles of gathering lines, additional processing capacity, NGL fractionation plants, and field compression systems. QEP partnerships own additional pipelines and processing facilities. In August 2013, QEP sold interests in its midstream assets through an IPO of MLP QEP Midstream Partners LP (NYSE: QEPM), which raised about $450 million in net proceeds.

QEP field services not associated with the MLP generates annual EBITDA of about $166 million. If one valued the non-MLP related EBITDA at approximately 14.5x, in line with general partners of MLPs that are structured as C-Corps., an enterprise value of $2.4 billion is derived. Additionally, the 57.8% ownership in QEPM is currently valued at $781 million. Note that this methodology does not give additional credit to the spin entity for holding the GP interest including incentive distribution rights (IDRs) and thus may understate the value. On this basis EMID could be valued at approximately $3.2 billion. EMID is expected to have $230 million in debt, resulting in a market cap of $3 billion, or $16.43 per share assuming a 1:1 distribution. As QEPM reaches certain distribution thresholds that lead to payment of IDRs, the resulting valuation could grow substantially. Given relatively stable corporate costs, scale can be critical for this business, particularly as it wishes to reach IDR thresholds. Jana Partners has noted the business should work better outside the E&P business constructs, as other E&Ps would probably be more willing to work with an independent company.

Other Rockies natural gas producers trade at about 1.9x EV/bcfe (billion cubic feet equivalent). Applying that multiple to QEP’s year-end proved reserves of 4.1 bcfe would result a value for the E&P operations of $7.8 billion.

Shares of Rouse Properties will be distributed via a pro rata taxable dividend after the bell on January 12, 2012, to General Growth Properties Inc. (NYSE: GGP) shareholders of record, as of the close of business on December 30, 2011. Rouse is expected to trade on the NYSE under the ticker ‘RSE’ following the separation. GGP shareholders will receive one share of RSE for every 26.66 shares of GGP. The ‘when issued’ market for RSE stock is expected to begin on or around December 28, 2011, with regular way trading expected to commence on January 13, 2012. GGP management intends for the dividend to satisfy a portion of its 2011 REIT taxable income distribution requirement. The SEC still must declare effective the spin-off companies’ Registration Statement to conclude the regulatory review and the NYSE must formally accept the listing.

As noted in our initial General Growth Properties Spin-Off Report (September 28, 2011), the fair value calculation would be adjusted based on the finalized distribution ratio, capital structure, dividend policy and changes in company/industry fundamentals. Capital structure remained largely unchanged. Rouse Properties is taking on approximately $1.16 billion in debt compared to the previous projection of $1.10 billion. As disclosed in an updated Form 10 since the initial evaluation, RSE’s net operating income in 3Q 2011 was larger than projected in the initial fair value calculation. Thus the revised 2011 NOI estimate of $143.8 is now used versus the previous $134.7. Additionally, the fair value estimate is adjusted for the finalized distribution ratio which is set at 1:26.66 versus the prior expectation for a 1:10 distribution. As a result, the fair value estimate for RSE is revised to $12 (see attachment).

Industry capitalization rates have remained fairly steady since the initial fair value estimate with retail rates averaging 7.6% in 3Q 2011, according to industry research firm Real Capital Analytics. One might expect that RSE will initially receive a higher than average cap rate as its current portfolio is less desirable than many of its peers. However, Rouse’s management will be investing heavily in its portfolio to make the properties more attractive to retail tenants. Successful investment could lead to increased NOI and lower capitalization rates awarded to RSE’s portfolio. Investors with a longer time horizon could see eventual upside to $21 per share as property improvements warrant higher valuation. (see attachment)

The parent post-separation is likely to trade around $14 per share, based on The Spin-Off Report calculations. However, one could consider that the separation from Rouse will make the company more comparable to peers, which generally trade at a premium valuation to pre-spin GGP. Improved sales per square foot and occupancy rates may warrant a lower cap rate which could provide upside potential to $19 (see General Growth Properties Spin-Off Report, dated September 28, 2011, for further details).

On December 15, 2011, Covidien plc (NYSE: COV) announced plans to separate into two independent publicly-traded companies. The pharmaceuticals business accounts for about $2 billion of COV’s $11.6 billion in annual sales. The spin company is a leading manufacturer of generic drugs in the US, including acetaminophen. The parent, a diversified medical products and supplies company, was spun off from Tyco International (NYSE: TYC) in 2007 and is based in Dublin, Ireland. The company sells a wide variety of vascular, respiratory, operating room monitoring and nursing care products. About 80% of the parent’s revenue (post-separation) is generated from medical device sales.

The spin-off is expected be conducted via a tax-free distribution to shareholders to be completed over the next 18 months. Capital and liability allocations are yet to be finalized. The spin-off will require regulatory approval, an effective Form 10 06/27/2014 filing with the SEC, an affirmative IRS ruling and final approval from the board of directors.

The announcement follows a similar plan introduced in October 2011 by Abbott Laboratories (NYSE: ABT) to separate into two companies: the spin company will control ABT’s current portfolio of proprietary pharmaceutical and biologics. The parent, a diversified medical products company, expects to maintain the Abbott name. In addition, Mead Johnson (NYSE: MJN), an infant nutrition producer, was carved out from Bristol-Myers Squibb Company (NYSE: BMY) in a two-stage transaction in 2009. Mead Johnson trades at 23x forward consensus earnings, BMY trades at 17x forward earnings, well above many peers. Since BMY completed the spin-off in December 2009, the stock is up more than 30% compared to a rise of about 10% for the S&P 500.

COV management cites differing business models, sales channels, customer profiles, and regulatory approval processes for the two businesses as reasons for the separation. The pharmaceuticals business may better focus on its product pipeline and international expansion following the transaction. Compared to other generic drug manufacturers COV trades at a similar price/sales multiple and at a slightly elevated price/future consensus earnings multiple (see attached exhibit). ABT is included in the table due to its future spin-off plans. COV’s medical devices business generates a significantly higher operating margin than the pharmaceuticals segment. One might expect the parent will trade at a higher multiple following the transaction while the spin-off entity generates a slightly lower multiple. If one assumes COV’s pharmaceuticals trades at a price/sales in line with the peer group (excluding ABT) of about 1.5x, one might reach a fair value for the spin-off entity (based on a 1:1 share distribution) of about $6 per share, although much further study of the transaction is required.

Notably COV outperformed the market in both the first and second years of its spin-off from TYCO. In the first year following the transaction, COV’s share price was up 7% compared to a nearly 11% decline for the S&P 500. In F2008 COV sales increased more than 11%. While the spin-off entity experienced margin declination as a stand-alone, the weakness can be owed to both the costs as an independent company as well as the spin-off taking place as the market entered a recessionary period. According to The Spin-Off Report data, operating margin declined from almost 23% pre-spin to slightly more than 20% in the two years following the transaction.

Expedia Inc. (NASDAQ: EXPE) announced its shareholders approved the spin-off of its travel advice website, TripAdvisor Inc., which will trade on the Nasdaq under the ticker ‘TRIP’ following the separation. Expedia expects the transaction, including a 1:2 reverse stock split immediately prior to the spin-off, to close on or about December 20, 2011. Shares of TripAdvisor began trading around $25 per share on a ‘when issued’ basis on the Nasdaq on December 7, 2011 under the ticker ‘TRIPV.’ Regular way trading is expected to commence following completion of the transaction, likely on December 21, 2011. EXPE will continue to trade under the present ticker as well as on a when issued basis under the ticker ‘EXPEV,’ which reflects the reverse split. EXPEV initially traded around $32 per share.

Shares of TRIP and EXPE are not recommended for purchase at this time given limited upside to The Spin-Off Report fair value estimates of $27 for TRIP and $33 for EXPE. Please refer to the published report on Expedia, dated November 7, 2011, for the methodology behind the fair value estimates.

Despite the seemingly sensible rationale for the separation, investors may wish to proceed cautiously given some clear drawbacks. The two businesses are synergistic, with TripAdvisor feeding traffic to EXPE. A visitor to TRIP can explore destinations and then book the vacation on EXPE. The much smaller TRIP will be saddled with much higher G&A costs as a standalone business, which will pull down operating margins post separation, while EXPE will have higher sales and marketing costs, both because it will compensate the independent TripAdvisor for drawing traffic to its site and because of its need to find new ways to reach web audiences.

On December 5, 2011, Entergy Corporation (NYSE: ETR) announced plans to separate its electric transmission business and merge the operations with independent electric transmission company ITC Holdings Corporation (NYSE: ITC). ETR expects to divest its electric transmission operations into newly-formed Mid South Transco LLC and distribute the entity to shareholders in a tax-free spin-off. Transco will then be merged with ITC in an all-stock Reverse Morris Trust transaction. ITC plans a $700 million recapitalization prior to the merger. The transactions will result in Entergy shareholders owning 50.1% of the shares of pro forma ITC and ITC shareholders owning the remaining 49.9% of the company. The transaction is expected to close in 2013. The transactions require approval by retail regulators, the Federal Energy Regulatory Commission (FERC) and ITC shareholders, as well as an IRS private letter ruling.

Entergy is expected to receive $1.775 billion in proceeds from debt issued as part of the transaction that will be assumed by ITC. ETR intends to use the cash to retire debt. As of September 30, 2011, ETR had net debt of nearly $11.5 billion. The transaction will enable ETR to reduce its debt level and focus new investment on its coal, gas and hydro power generation facilities. Entergy owns and operates power plants with approximately 30,000 megawatts of electric generating capacity, and it is the second-largest nuclear generator in the United States.

The rate base for pro forma ITC is expected to be about $7.1 billion by year-end 2013. The transaction is expected to be immediately value accretive to ITC shareholders. The merged entity will focus on required new investment in electric transmission infrastructure.

ETR previously planned to spin off its nuclear operations into a newly formed company Enexus Energy but faced still resistance from state regulators. The planned spin-off never occurred as state regulators in New York and Vermont opposed the transfer of six nuclear plants to Enexus as the long-term financial stability of the company was called into question. The current spin-off likely won’t face the same intense regulatory and environmental scrutiny. Additionally the debt load being assigned to the newly formed company appears to be within ITC’s ability to handle.

Following the transaction ITC will have over 30,000 miles of electric transmission lines including the almost 16,000 miles contributed by ETR. ITC’s geographic footprint will be significantly expanded as the current Great Plains/Midwest focus will now include Gulf Coast assets. A regional headquarters will be established in Jackson Mississippi.

Shares of Marriott International (NYSE: MAR) have reached The Spin-Off Report initial fair value estimate of around $31 per share. Holders may utilize this estimate in deciding whether to maintain their position in the stock. One might recall Marriott International was recommended for purchase on August 19, 2011, prior to the spin-off of Marriott Vacations Worldwide (NYSE: VAC), as the timeshare segment seemed to be causing a drag on the valuation. At that point, it appeared investors would receive the VAC shares for free. Shares of VAC were distributed on a 1:10 basis after the bell on November 21, 2011 to MAR shareholders, and regular-way trading commenced on November 22, 2011. At the time of publication, MAR was priced at $26.79. Based on today’s intra-day price of MAR post separation at $30.64 per share, plus VAC at $15.90 per share and a 10-cent dividend, the return on the holdings post recommendation total about 21% compared to a rise of 11% for the S&P 500 over the same period.

One may consider maintaining or raising a position in VAC based on The Spin-Off Report fair value estimate of $26 per share. The opportunity for long-term investors appears significant if one assumes the timeshare market can even approach pre-recession peak levels. Based on the lower cost structure VAC put in place during the downturn and the vast unsold inventory already in place, opportunities for EBITDA improvement would appear significant as sales improve. Even if one wrote down inventory to already constructed units at cost, book value would still approach $14 per share, only marginally below the current trading range. Stable, recurring management fees largely offset annual licensing payments to the parent.

The Williams Companies (NYSE: WMB) announced its board of directors approved the spin-off of its exploration and production assets, WPX Energy Inc., which will trade on the NYSE under the ticker ‘WPX’ following the separation. WMB has received a private letter ruling from the IRS confirming that the distribution of shares qualifies for tax-free status for federal tax purposes. The SEC still must declare effective the spin-off companies’ Registration Statement to conclude the regulatory review. Shares of WPX will be distributed on December 31, 2011 to WMB shareholders, with regular way trading expected to commence on January 3, 2012. WMB holders will receive one share of WPX for every three shares of WMB held at the close of business on December 14, 2011. The ‘when issued’ market for WPX stock is expected to begin on or around December 12.

As noted in our initial Williams Spin-Off Report (November 17, 2011), the fair value calculation would be adjusted based on the finalized distribution ratio, capital structure, dividend policy and changes in company/industry fundamentals. The adjustments to the initial calculations are shown in the attachment. Capital structure remained largely unchanged from the unamended Form 10. WPX’s net debt will stand at about $950 million following a $979 million distribution to WMB funded by the debt offering. The original fair value calculation was based on a 1:1 distribution.

The revised fair value calculation is rounded to $35 per share from the previous $11 largely based on the distribution ratio. A further evaluation of fair value could take place prior to regular-way trading if and when new or updated information becomes available. Please see the November 17, 2011 Spin-Off Report on Williams for the methodology behind the initial calculation.

The fair value range of WMB post-separation remains unchanged at $22-$26 per share. Upside to WMB post spin could result from increased demand for capacity on certain WMB pipelines and from possible rate case victories, as well as expansion and construction of new pipe, leading to dividend growth. Williams will also likely have greater capacity to pay down debt and buy back shares, as the parent no longer must fund asset acquisitions and development costs of the E&P. Possible upside to the spin-off entity’s fair value estimate could come from rising commodity prices as well as increasing oil production from the Bakken Shale.

On November 29, 2011, AMR Corporation (NYSE: AMR) announced it had voluntarily filed for Chapter 11 bankruptcy protection to reorganize its cost and debt structures in an attempt to improve competitiveness. The company also announced that CEO Gerald Arpey will be succeeded by Thomas Horton.

As detailed in the initial AMR Corporation Spin-Off Report, dated November 7, 2011, the inability of management to reach an agreement with the unions, combined with the company’s significant debt and pension obligations, presented significant risks to solvency. The failure to reach a new accord with labor likely led to the reorganization filing. Industry dynamics have shifted in recent years as competitors have emerged from bankruptcy with improved cost structures, while low-cost carriers have expanded and mergers have created economies of scale. AMR’s previous lack of reorganization placed it at a competitive disadvantage versus peers.

In AMR’s most recent quarterly results, the company reported a net loss of $162 million. The airline planned to reduce fourth quarter capacity 3% to improve the cost structure. AMR had net debt of $12.6 billion which does not include its underfunded pension plan. As of December 30, 2010, AMR’s pension plan was underfunded by $5.2 billion. The bankruptcy filing likely positions AMR to restructure its debt and pension obligations, while lowering its labor costs as unions are forced to give concessions in bankruptcy. If AMR Corp. is able to successfully emerge from bankruptcy, it may position the company to more effectively compete for business. Given the filing, the spin-off transaction of American Eagle Holding Corp. appears to be on hold until further notice.