On November 26th, Vivendi SA’s (Ticker: VIV FP, EUR 18.80, Market Capitalization: EUR 25.3 billion) Supervisory Board, headed by Chairman Jean-René Fourtou, approved the demerger of telecommunications company SFR, following a study that was launched on September 11th. Vivendi was included in The Global Spin-Off Radar Screen in June (EUR 15.17), in anticipation of a potential separation between its telecommunications and media assets. The rationale for the spin-off is to offer SFR more autonomy to operate in a very competitive market that has resulted in a significant decline in revenues. After the distribution of SFR shares, Vivendi will be comprised of pay-TV Canal+, music company Universal Music Group and Brazilian broadband company GVT, and will be headed by current Vice-Chairman Vincent Bolloré—whose Group Bolloré holds 5% of Vivendi’s shares. The demerger is subject to regulatory approvals, as well as shareholder approval at the annual shareholders’ meeting in June 2014.

Vivendi is a French telecommunications conglomerate headquartered in Paris, France. It has been actively purchasing companies over the past 20 years under CEOs Jean-Bernard Lévy and Jean-Marie Messier, holding stakes in NBC Universal (until it was sold to General Electric and Comcast) and French utility Veolia Environment, among others. As of 2013, the conglomerate comprised of SFR, Canal +, GVT, Universal Music Group, as well as Moroccan telecommunications company Maroc Telecom and gaming company Activision Blizzard. As part of its strategic shift from a holding company to a focused media group, executed under Chairman Fourtou, Vivendi agreed in July to sell most of its 63% stake in Activision Blizzard for USD 8.2 billion. It expects to dispose its remaining shares within the next year, for approximately USD 1.4 billion, thus bringing the total proceeds to USD 9.6 billion, or EUR 7.1 billion. Additionally, Vivendi reached an agreement in November to sell its 53% stake in Maroc Telecom to Etisalat for USD 5.7 billion, or EUR 4.2 billion. As far as its media assets are concerned, Vivendi purchased on October the remaining 20 percent stake in Canal + from Lagardère, for EUR 1 billion.

Vivendi’s media assets have been performing significantly better than those of SFR. For the nine months through September 30th, 2013, Universal Music Group generated EBITDA of EUR 386 million, a 20

percent year-on-year increase. GVT’s EBITDA increased by 0.6 percent, to EUR 531 million—even though the change in constant currency terms was 14 percent. EBITDA at Canal + declined by 6.7 percent to EUR 847 million, bringing the total EBITDA for the nine-month period to EUR 1,764, at par with the same period in 2012. SFR, on the other hand, had EBITDA of EUR 2,201 million, representing a 19.5 percent decline on a yearly basis. Assuming the same year-on-year changes to each company’s full year EBITDA, and after adjusting for EUR 114 in corporate overhead expenses, SFR could achieve EBITDA of EUR 2,599 million in 2013, and Vivendi post-spin-off EBITDA of EUR 2,374 million.

SFR could be compared to a set of European telecommunications companies, such as Orange and Iliad SA, that trade at an average enterprise value-to-EBITDA of 7.57, resulting in an enterprise value of EUR 19.7 billion. Vivendi, post spin-off, could be valued at a similar multiple as another major European media company, Liberty Global Plc. Applying its 11.06 enterprise-to-EBITDA multiple, a post spin-off Vivendi could be valued at EUR 26.3 billion. Consequently, the combined entity could have an enterprise value of EUR 45.9 billion. As of September 30th, Vivendi had EUR 7.2 billion of net debt, including the cash proceeds from the sale of Maroc Telecom and Activision Blizzard, as well as the outflows from the purchase of 20 percent of Canal +. Further adjustment is required to incorporate the EUR 1.1 billion of additional cash Vivendi is expected to generate from the sale of its remaining shares in Activision Blizzard, thus reducing net debt to EUR 6.1 billion. The resulting market capitalization is EUR 39.8 billion, which compares to the current market value of EUR 25.3 billion.

On December 13, 2010, Forest Oil Corporation (NYSE: FST) announced that Lone Pine Resources, a wholly-owned subsidiary that will hold all of Forest Oil’s Canadian oil and natural gas exploration and production assets, had filed a Form S-1 registration statement with the SEC related to a proposed initial public offering (IPO) for approximately 19.9% of Lone Pine’s common stock. Forest Oil also announced that following the completion of the IPO, it intended to distribute its then-80.1% ownership of Lone Pine stock to Forest Oil shareholders via a tax-free distribution. The IPO is expected to be completed in the first half of 2011, while the tax-free distribution of shares is expected approximately four months after the completion of the IPO.

The Canadian operations of Forest Oil were previously operated as Canadian Forest Oil Ltd. As of December 31, 2009, Canadian Forest Oil held estimated proved reserves of approximately 322 billion cubic feet of natural gas equivalents (Bcfe), of which approximately 69% was comprised of natural gas reserves. The company’s primary area of operation is in the Western Canadian Sedimentary Basin, although the company owns significant acreage in the Utica Shale in Quebec and the Liard Basin in the northwest region of the country, which represent shale gas prospects that the company believes hold significant development potential. As a stand-alone entity, Lone Pine will seek to exploit its active resource plays by applying horizontal drilling and multi-stage hydraulic fracture stimulation techniques, while investing sufficient resources into its shale gas projects to commence their development in the near future.

Forest Oil will continue its core, US-based exploration and production of unconventional resource plays in the Texas Panhandle and the East Texas/North Louisiana area. Excluding the proved reserves of the Canadian operations being divested, Forest Oil had proved reserves of approximately 1,800 Bcfe as of December 31, 2009, of which the majority was natural gas. The separation is expected to allow Lone Pine to pursue it exploration and development efforts under a capital budget consistent with its own business strategy, thus enhancing the value of this business.

On December 8, 2010, NTELOS Holdings Corporation (NASDAQ: NTLS), a Virginia-based regional communications services provider, announced that its Board of Directors had approved the tax-free spin-off of its wireline business from its wireless business during the second half of 2011. The transaction is subject to customary spin-off approvals, including IRS, SEC, and final Board of Directors approval, but will also require confirmation from state regulatory bodies and the Federal Communications Commission.

The spin-off company, New Wireline, will operate the company’s land-line businesses as a rural exchange carrier, offering communications services to residential and small business customers in select cities in Virginia, and as a competitive wireline operator, providing large business customers with high capacity internet protocol and data services primarily in Virginia and West Virginia. New Wireline’s operations are supported by a 5,700 route-mile fiber optic network. For the twelve months ended September 30, 2010, the wireline operations of NTELOS Holdings as reported, plus the historical results of recently-completed acquisitions, generated pro-forma revenue of $214 million and EBITDA of $105 million, excluding its share of corporate expenses. New Wireline is expected to have debt of approximately $315 million upon the completion of the spin-off, and will pay a yet-unspecified dividend to New Wireless (post-spin-off NTELOS Holdings) as part of the separation.

Following the completion of the spin-off, New Wireless (post-spin-off NTELOS Holdings) will continue providing wireless digital voice and data service to approximately 435,000 subscribers primarily in Virginia and West Virginia, as well as operating a wholesale business that provides Sprint Nextel Corporation (NYSE: S) with service in the western Virginia and West Virginia area for Sprint Nextel customers. For the twelve months ended September 30, 2010, the wireless operations of NTELOS Holdings generated revenue of $406 million and EBITDA of $149 million, adjusted for charges from voluntary early retirement and workforce reduction plans and excluding its share of corporate expenses.

One of the stated reasons for effecting the spin-off is the divergent growth prospects and internal competition for capital that has existed under NTELOS Holdings’ current structure. The wireless business, for example, is positioned as a regional, independent leader that could potentially be acquired by one of the national wireless carriers, while the wireline business is likely to continue acquiring assets in order to expand its offerings and drive future growth.

The spin-off could unlock shareholder value, as the company appears to be valued as a wireless operator, without giving consideration to the higher-multiple wireline business. On a consolidated basis, NTELOS currently trades at an EV/2011E EBITDA multiple of 5.3x, which is in line with the average multiple of 5.2x EBITDA for comparable, regional wireless companies. However, such a valuation arguably does not reflect the higher valuation of the wireline assets, as comparable, regional wireline companies trade at EBITDA multiples closer to 7.3x.

On December 8, 2010, Fortune Brands (NYSE: FO) announced that its Board of Directors had approved the tax-free spin-off of its home and security consumer products business and that it was examining the potential sale or tax-free spin-off of its golf products business. Although there is no definitive timeframe for these transactions, the company stated that it intends to finalize its separation plans within the next several months, with a view to effecting both divestitures soon thereafter.

The home and security business is a domestic leader in a variety of branded consumer products, including: faucets, cabinets, entry-doors, windows, padlocks and related security products, and home-storage products. To the extent that the US housing market recovers going forward, this business could become much more profitable, as evidenced by the segment’s 2006 revenue of $4.7 billion and operating income of $700 million, excluding its share of consolidated corporate expenses, which is almost three times more than the segment’s 2010 annualized operating income of $240 million.

The golf products business is a worldwide leader in the manufacture and sale of golf balls, clubs, shoes, gloves, bags, outerwear, and accessories. This segment’s current annualized revenue and operating income is approximately $1.3 billion and $150 million (excluding corporate expenses), respectively.

Following the completion of the home and security spin-off and the divestiture, either through a sale or a spin-off, of the golf business, Fortune Brands would become a pure-play, distilled spirits company with a leadership position in bourbon, as well as a global participation in whiskey, tequila, cognacs, and other liquors. The company’s brands include Jim Beam, Maker’s Mark, Knob Creek, Canadian Club, Laphroaig, Teacher’s Highland, Sauza, Hornitos, El Tesoro, Courvoisier, and DeKuyper. Annualized revenue and operating income for the year within the spirit segment is approximately $2.5 billion and $505 million (excluding corporate expenses), respectively.

Management indicated that the underlying reason for the separation of its three businesses is to help maximize shareholder value. However, there appears to be little upside in the short-term, as comparable companies trade at par or at a discount to Fortune Brands’ current consolidated EV/2011E EBITDA multiple of almost 11x. Spirits companies trade at 11x their 2011 EBITDA estimates, while golf product companies trade at approximately 6x EBITDA, and home consumer products companies trade at approximately 10x EBITDA. Following a share price appreciation of over 60% since early July 2010, it appears that the shares of Fortune Brands have priced in any type of valuation discrepancy that may have existed as a result of the company’s conglomerate structure. There does appear to be a long-term investment thesis surrounding these businesses, however, as the spirits and home and security segments are currently performing well below the peak earnings that were realized in healthier economic environments.

On November 18, 2010, Cablevision Systems Corporation (NYSE: CVC) announced that its Board of Directors had authorized management to explore the potential spin-off of certain of its programming-related assets. The spin-off, if approved, would be effected as a tax-free pro-rata distribution of shares to Cablevision shareholders in mid-2011.

The assets that would comprise the spin-off include five national cable networks, including AMC, WE tv, IFC, Sundance Channel, and Wedding Central, as well as IFC Entertainment, an “”indie”” film distributor, and Rainbow Network Communications, which is primarily a transmission company servicing Cablevision’s current programming. Following the completion of the proposed spin-off, Cablevision would retain the telecommunications and cable business, the Newsday newspaper publishing business, a New York regional news network named News 12, a network dedicated to high school sports named MSG Varsity, and fifty-four movie theater operations through Clearview Cinemas.

Cablevision’s Rainbow segment generated revenue and operating income during the nine months ended September 2010 of $837 million and $164 million, respectively, although these results include contributions from businesses that would remain with Cablevision.

The valuation of these two businesses, as separate entities, could be greater than Cablevision’s current valuation, as content companies typically trade at higher multiples of EBITDA than cable companies (approximately 9x 2011E EBITDA versus 6x for cable companies, and approximately 7.4x for Cablevision). Because of this, the proposed spin-off has the potential to unlock value.

On November 5, 2010, financial news outlets reported that Northrop Grumman (NYSE: NOC) is expected to forego the sale or auction of its shipbuilding subsidiary, New Ships, Inc., in favor of a spin-off of these assets. Northrop Grumman had been seeking private equity bids for the potential sale of New Ships, but according to insider sources, bidders were informed last week that the company had decided to cancel these proceedings after bids fell short of expectations. It is believed that Northrop Grumman would prefer divesting New Ships via a spin-off due to the complexity of attaining approval from the US Navy (a significant client of New Ships) regarding new ownership, as well as the potentially high tax bill that would result from a sale of this business.

The bids put forth by private equity firms apparently fell short of the $3 billion that Northrop was reported to have wanted in a sale of this business, as bids were likely based upon currently-depressed earnings. Northrop Grumman, which had emphasized the prospect of a relatively quick recovery within the business, felt these bids undervalued the earnings potential of this business, which generated net income of $276 million as recently as 2007. Based on 2007 earnings, a $3.0 billion market value would imply an earnings multiple of approximately 11x.

New Ships is the country’s sole builder of nuclear-powered aircraft carriers, one of two companies capable of building nuclear-powered submarines for the US Navy, and the sole provider of amphibious assault ships to the US Navy. New Ships also constructs warships designed to launch guided missiles and is an after-market service provider for naval and commercial vessels. New Ships generates substantially all of its revenue from the US government.

On August 25, 2010, General Growth Properties (NYSE: GGP) (‘General Growth’) filed a Form 10 Registration Statement with the Securities and Exchange Commission pursuant to the spin-off of its unnamed, master planned communities and strategic real estate development company (‘SpinCo’). The spin-off is expected to be completed during the fourth quarter of 2010 as part of General Growth’s Chapter 11 reorganization plan, and will be effected via a pro-rata, tax-free distribution to General Growth shareholders. Following the completion of the spin-off, SpinCo shares are expected to trade on the New York Stock Exchange.

The real estate assets that will comprise SpinCo’s operations represent General Growth’s master planned communities (‘MPC’) and strategic development businesses. The company’s success will be contingent upon its ability to raise the capital necessary to finance multi-year development projects, which General Growth would not have been able to accomplish given its constrained balance sheet upon its emergence from bankruptcy.

The MPC business includes seven communities with development and sale prospects for residential and commercial land. The development of the MPC assets will be a long-term undertaking, as over 4,000 acres of land remain to be sold, and the company currently estimates that the sell-out date of the majority of this land will take place in the late 2030’s.

The strategic development assets comprise a variety of mall and mixed-use properties that have short, medium, and long-term development timeframes. The ‘mixed-use development opportunities’ properties contain 2.5 million square feet in gross leasable area, while the properties designated as ‘redevelopment’ contain 1.0 million square feet in gross leasable area. Additionally, the ‘mall development projects’ properties consist of 647 acres of land intended for future mall construction. The ‘other interests’ assets comprise the company’s non-core real estate interests.

The company would have generated negative net income as a stand-alone during the period 2007-2009 and will likely continue losing money during 2010, as a result of the current economic recession. However, the company does provide a figure for adjusted EBITDA that is modestly positive for the period 2007-2009 (the most impactful adjustments relate to impairment provisions). Pro forma as of June 30, 2010, the company held cash of $253 million, debt (mortgages, notes, and loans payable) of $340 million, and shareholders’ equity of $2.7 billion.

As part of General Growth’s Chapter 11 reorganization plan, investors, which include Brookfield Asset Management (NYSE: BAM), Fairholme Fund, and Pershing Square Capital, have committed to purchase up to $250 million of SpinCo’s common stock. These investors will also receive warrants to purchase additional shares of common stock. Further, Blackstone Group (NYSE: BX) will hold approximately 7.6% of SpinCo’s common stock (and additional warrants) as a result of an agreement to purchase a stake in the company from the aforementioned investors. In aggregate, Brookfield Asset Management, Fairholme Fund, and Persing Square Capital are expected to hold 13.7%, 6.8%, and 12.0%, respectively, of SpinCo’s common stock following the completion of the spin-off (inclusive of shares issuable upon exercise of the warrants, and after giving effect to Blackstone Group’s warrants).

On July 27, 2010, Lockheed Martin Corporation (NYSE: LMT) announced that it is considering strategic alternatives in regards to the divestiture of its enterprise integration group (‘EIG’), focusing in particular on a sale of the business or a possible spin-off to Lockheed Martin shareholders. The company expects to complete either the sale or spin-off transaction during 4Q 2010.

Lockheed Martin’s decision to divest EIG stems from the US government’s recently-passed Weapon Systems Acquisition Reform Act, which seeks to prevent possible conflicts of interest within defense contracting companies that provide both advisory services and engineering work for the same government program. Following the passage of the legislature, defense companies such as Northrop Grumman (NYSE: NOC), which sold its advisory services operations in December 2009, have begun to divest certain businesses in an effort to circumvent possible conflicts of interest that would prevent them from bidding on new government projects.

Lockheed Martin’s EIG provides systems engineering and integration products and services, primarily to the US government. Although EIG’s financial information is not clearly segmented within the company’s financial statements, the company did state that this segment’s (along with that of Pacific Architects and Engineers, Inc., a global infrastructure business that Lockheed Martin also intends to divest) contribution to revenues and operating profit represented 3% of the company’s 2009 results. As such, if one assumes that EIG generated half of the aforementioned 3% contribution, then 2009 revenue and operating profit would be $678 million and $67 million, respectively.

On July 13, 2010, Northrop Grumman Corporation (NYSE: NOC) announced that it is considering strategic alternatives in regards to the divestiture of its shipbuilding business, focusing in particular on a possible spin-off to Northrop Grumman shareholders. The company’s management did not provide further details regarding the timing or the structure of the possible transaction.

The shipbuilding business generates the vast majority of its revenue from the US government and is the country’s sole builder of nuclear-powered aircraft carriers, one of two companies capable of building nuclear-powered submarines for the US Navy, and the sole provider of amphibious assault ships to the US Navy. This business also constructs warships designed to launch guided missiles and is an after-market service provider for naval and commercial vessels. In 2009, the shipbuilding business generated revenues of $6.2 billion and operating income of $299 million.

On July 2, 2010, McDermott International (NYSE: MDR) announced the distribution date of the spin-off of The Babcock & Wilcox Company (“”Babcock””). Shares of Babcock will be distributed via a tax-free distribution on July 30, 2010, to shareholders of record on July 9, 2010. Babcock shares are expected to begin trading ‘regular way’ on the New York Stock Exchange on August 2, 2010, under the ticker symbol ‘BWC.’ Shareholders of MDR will receive one share of BWC for every two shares held. Following the completion of the spin-off, McDermott International will be renamed J. Ray McDermott, S.A. and retain the ticker symbol ‘MDR’ on the New York Stock Exchange.

We had previously established a fair value estimate for Babcock of $12 per share based on an assumed exchange ratio of 1:1. Due to the finalized exchange ratio of 1:2, we are revising our fair value estimate to $24 per share.

Please refer to our published Spin-Off Report on McDermott International, dated June 28, 2010, for additional information.