On June 20, 2010, Liberty Media Corporation (NASDAQ: LCAPA, LCAPB, LINTA, LINTB, LSTZA, LSTZB) announced that its Board of Directors had approved the tax-free split-off of its Liberty Capital and Liberty Starz tracking stock businesses from its Liberty Interactive tracking stock business. The split-off is subject to various conditions, including the redemption of outstanding Liberty Capital and Liberty Starz tracking stocks in exchange for new tracking stocks related to a newly-formed company, and shareholder approval from the tracking stock holders of Liberty Capital and Liberty Starz. Liberty Media Corporation stated that if the conditions for the split-off are satisfied, the transaction is expected to occur in late 2010 or early 2011.

Liberty Capital (LCAPA, LCAPB) is comprised of a variety of businesses such as Starz Media, a film and television producer and distributor, and the Atlanta Braves baseball club, as well as investments in Sirius XM Radio (NASDAQ: SIR), Time Warner Inc. (NYSE: TWX), and Sprint Nextel (NYSE: S). Liberty Capital generated revenue of $649 million during 2009, but posted a net loss of $263 million, which represents a decrease from a $651 million loss during 2008.

Liberty Starz (LSTZA, LSTZB) provides subscribers with movies and original programming through cable or satellite television providers in the US. Liberty Starz generated adjusted OIBDA of $384 million in 2009, a 28% increase from 2008 which was due primarily to lower licensing fees as a percentage of revenues.

Following the completion of the split-off, Liberty Media Corporation would be comprised solely of Liberty Interactive (LINTA, LINTB), which owns interests in video and online commerce companies such as QVC, Inc., Tree.com, Inc. (NASDAQ: TREE), and IAC/Interactive Corp. (NASDAQ: IACI), as well as other investments. During 2009, the QVC television and internet retail business generated 94% of Liberty Interactive adjusted OIBDA of $1,668 million, the balance of which was generated by other e-commerce businesses.

In November 2009, Liberty Media Corporation effected the split-off of another tracking stock business, Liberty Entertainment, the completion of which created the tracking stock of Liberty Starz. If measured by share price performance, the creation of the Liberty Starz tracking stock has been a successful endeavor, as it has outperformed the S&P500 by 7% since its initial when-issued trading price.

On June 16, 2010, Vishay Intertechnology (NYSE: VSH) announced the targeted distribution date of the spin-off of Vishay Precision Group. Shares of Vishay Precision Group are targeted to be distributed via a tax-free pro-rata dividend on July 6, 2010, to shareholders of record on June 25, 2010. Vishay Precision Group shares are expected to begin trading ‘regular way’ on the NYSE on July 7, 2010, under the ticker symbol ‘VPG.’ Shareholders of VSH will receive one share of VPG for every fourteen shares held.

The spin-off is subject to various conditions, including effectiveness of its registration statement with the SEC. Vishay Intertechnology stated that if the conditions for the spin-off are not satisfied in time for a July 6, 2010 distribution, then the distribution would be scheduled to occur on August 2, 2010.

On June 16, 2010, Sunoco, Inc. (NYSE: SUN) announced that its Board of Directors is considering the tax-free spin-off of its metallurgical coke business from its fuel refining and retail marketing operations. Sunoco expects that the spin-off, if approved by its Board of Directors, would be completed during the first half of 2011.

Sunoco’s metallurgical coke business, SunCoke Energy, provides steel manufacturers in the US and Brazil with high-quality coke, a principal raw material in steel making. SunCoke’s US facilities have a capacity to manufacture 3.67 million tons of metallurgical coke annually, while its Brazilian business is conducted via the operation of a coke-making facility with a capacity of 1.7 million tons. SunCoke generated EBITDA of $226 million during 2009, and management has provided EBITDA guidance of $215-$235 million for 2010.

Should the spin-off be enacted, Sunoco, Inc. would become a pure-play oil refiner and retail fuel marketer with over 4,700 gas stations in the US. Additionally, Sunoco would continue owning a 33% interest and a general partner interest in Sunoco Logistics Partners (NYSE: SXL), a master limited partnership that operates over 6,000 miles of oil pipelines.

On May 24, 2010, Pharmaceutical Product Development, Inc. (NASDAQ: PPDI) announced the distribution date of the spin-off of Furiex Pharmaceuticals. Shares of Furiex Pharmaceuticals will be distributed via a tax-free distribution on June 14, 2010, to shareholders of record on June 1, 2010. Furiex Pharmaceuticals shares are expected to begin trading ‘regular way’ on the Nasdaq Global Market on June 15, 2010, under the ticker symbol ‘FURX.’ Shareholders of PPDI will receive one share of FURX for every twelve shares held.

We are maintaining our fair value estimate for Furiex Pharmaceuticals of $5 per share based on the finalized exchange ratio of 1:12, which we believe is an adequate margin of safety for those investors with a risk tolerance suitable for this speculative investment. Furiex will be capitalized with $100 million in cash, equivalent to just over $10 per share, which should fund research and development for close to two years. Further, the company has the potential to realize growth in royalty and milestone payments in the near-term, which could create shareholder value going forward. However, until there is greater visibility into the magnitude of the company’s sustainable revenues (i.e. royalty payments), we are recommending a significant degree of caution as evidenced by a fair value estimate that reflects a steep discount to cash on hand.

For those investors with a short-term trading focus, Furiex may present a compelling opportunity within the first few days of regular-way trading. Given the speculative nature of the spin-off and the discrepancies in market capitalization between spin-off and the parent company, shares of Furiex may be sold indiscriminately upon distribution. This may allow investors to purchase shares at a significant discount to our fair value estimate and capture the potential rebound in share price as Furiex shares begin to reflect the value of their $100 million net cash position.

Due to its expected market capitalization, we will not be providing coverage of Furiex Pharmaceuticals beyond the distribution date.

First American Financial Corp. (NYSE: FAF) and CoreLogic (NYSE: CLGX) have begun trading in the when-issued market. Shares of FAF will be distributed via a tax-free spin-off on June 1, 2010, to shareholders of record on May 26, 2010, with regular-way trading expected to begin trading on June 2, 2010. Shareholders of First American Corp. will receive one share of First American Financial Corp. and retain one share of CoreLogic, Inc.

There has been limited liquidity in the when-issued market for either company, however, both stocks are trading at significant discounts to our fair value estimates. As such, we recommend shares of both FAF and CLGX for purchase.

First American Financial Corp.
Shares of FAF are currently trading $15 per share intraday, or approximately 15% below the $17-$18 estimate that we believe the shares are worth in the current market. Further, if one considers that the current market reflects both trough earnings forecasts and valuation multiples that are below historical averages for the title insurance industry, shares of FAF are likely worth considerably more long-term.

At $15 per share, First American Financial has an estimated market capitalization of just over $1.5 billion relative to pro forma book value of $1.8 billion. First American Financial will have an estimated $400 million in net cash and marketable securities (holdings in CLGX) at the time of the spin-off; therefore, if one separates this $400 million from both the company’s market capitalization and its book value, FAF is found to be trading at less than 0.8x book value, whereas a target multiple of 1x book value is, arguably, more appropriate.

CoreLogic
Shares of CLGX are currently trading at $19 per share intraday, or approximately 10% below the $21 estimate that we believe the shares are worth in the current market. Further, as is the case with FAF, this valuation is based on trough earnings forecasts and valuation multiples that are both below historical averages and below other relevant comparable companies, implying that shares of CoreLogic are a compelling long-term investment at these levels.

At $19 per share, CoreLogic is trading at approximately 6.4x estimated 2010 EBITDA of $415 million. Although this valuation is comparable to Lender Processing Services (NYSE: LPS), one could argue that a significantly higher multiple is justified, as businesses that exhibit CoreLogic’s operating leverage and free cash flow generation typically trade at EV/EBITDA multiples of approximately 8x or higher. Further, CLGX should experience a higher growth rate as we move towards a rebound in the housing market (LPS, with significantly higher exposure to default management services, will likely see increased revenues from mortgage originations be offset by declines in revenues from default management). We estimate that CoreLogic’s existing business has the potential to earn approximately $500 million in EBITDA in a healthier mortgage environment, which, when combined with the possibility of multiple expansion, should lead to significant share price appreciation going forward.

On May 14, 2010, First American Corp. (NYSE: FAF) announced that the Securities and Exchange Commission has declared effective the Form 10 registration statement of First American Financial Corp (FAFC). Shares of FAFC will be distributed via a tax-free spin-off on June 1, 2010, to shareholders of record on May 26, 2010. First American Financial Corp. shares are expected to begin trading “”regular way”” on the New York Stock Exchange on June 2, 2010, under the ticker symbol “”FAF.”” Shareholders of First American Corp. will receive one share of First American Financial Corp. and retain one share of CoreLogic, Inc., which had previously been known as InfoCo. CoreLogic, Inc. will trade on the New York Stock Exchange under the symbol “”CLGX.””

We continue to recommend shares of FAF leading up to the spin-off, as we believe there is upside on a sum-of-the-parts basis. First American Financial Corp., at 1x book value, would be valued at $17-$18 per share, while CoreLogic, at a modest 7x EV/EBITDA multiple, would be valued at $21. Further, one could argue that both entities are attractive at these prices, as these valuations are based upon trough earnings estimates and valuation multiples that are below historical averages.

Lastly, we see significant upside to the value of CoreLogic at $21 per share. Although the 7x EBITDA target multiple used in this derivation is on par with its closest comparable, Lender Processing Services (NYSE: LPS), it is well below that of Verisk Analytics (NASDAQ: VRSK), which currently trades at approximately 12.4x 2010E EBITDA, and below the 8.5x-9.0x EBITDA multiple range seen among other comparable information solutions businesses. It would appear that CoreLogic could experience EBITDA growth at a level that would warrant these higher multiples, as we believe EBITDA from the company’s existing operations (i.e. before new business opportunities) could exceed $500 million in a healthier housing environment versus the company’s 2010 EBITDA guidance of $400-$430 million. Should investors value CoreLogic based on 8x-9x a 2010 EBITDA estimate of $415 million (the mid-point of company guidance), the fair value of this business increases to $24-$28 per share.

On April 29, 2010, Clearwater Paper Corp. (NYSE: CLW) announced 1Q10 earnings of $0.04 per share, inclusive of a one-time charge of $0.37 per share related to the Patient Protection and Affordable Care Act of 2010 and maintenance costs of $0.86 per share, or $16.9 million. The company had previously guided that it would realize this maintenance charge in the first quarter, and its full-year maintenance expense guidance of $20-$25 million remained unchanged. Using a normalized maintenance expense assumption of $5.5 million per quarter, we estimate that Clearwater’s current runrate EBITDA is approximately $135-$140 million.

While the company’s operating performance beat expectations, Clearwater’s progress in collecting its alternative fuel tax credit was also of note. The company finished the quarter with net cash and short-term investments of $102 million, but mentioned during its conference call that it had collected its remaining $62 million in tax credits subsequent to the first quarter. Further, although it reiterated that it did not believe these credits were taxable, Clearwater continued to accrue a tax reserve related to these credits, as it has yet to receive an official ruling from the IRS as to whether the alternative fuel tax credits are taxable. We estimate that the tax reserve related to these credits is approximately $66 million and believe these funds could be released (and accrue to cash) by the second quarter upon a favorable ruling from the IRS. Therefore, in total, Clearwater stands to have a net cash position of $164-$230 million (depending on the tax ruling) by the end of the second quarter, before any contribution from cash from operations.

This cash position is significant relative to the company’s current market capitalization of $730 million, and implies an enterprise value for Clearwater of $500-$565 million. Based on current runrate EBITDA, Clearwater is trading at an EV/EBITDA multiple of only 3.6x-4.2x, leaving considerable share price appreciation potential should multiples expand to a normalized range of 5x-to-7x. As such, we continue to recommend shares of CLW for purchase.

On April 27, 2010, Tyco International (NYSE: TYC) announced its intention to spin off its Electrical & Metal Products business via a tax-free distribution of shares during the first half of 2011. The proposed spin-off is subject to approval from the SEC, the Board of Directors, and Tyco International shareholders.

The Electrical & Metal Products business manufactures galvanized steel tubing and pipes, electrical support systems, and metal framing systems for the construction and modernization of non-residential structures. During the fiscal year ended September 25, 2009, the segment generated revenue of $1.3 billion and an operating loss of $5 million, adjusted for a $935 million goodwill impairment charge related to low sales volumes. That said, during fiscal year 2008, which represented a healthier market for commercial property development, as well as higher selling prices of steel products, the segment generated revenue of $2.3 billion and operating income of $342 million.

Following the completion of the spin-off, Tyco International will remain an industrial conglomerate with business interests that provide electronic security systems through ADT Worldwide, valves and piping systems for the oil and gas industry, fire protection services for commercial and industrial clients, and safety products, including fire suppression products.

On April 21, 2010, Questar Corporation (NYSE: STR) announced that its Board of Directors is considering the tax-free spin-off of its exploration and production (E&P) business, midstream field services business, and commodity marketing business from its natural gas utility operations. Questar expects that the spin-off, if approved by its Board of Directors, would be completed during the second half of 2010. The company is expected to provide further details regarding the possible transaction when it releases first quarter 2010 earnings on April 27, 2010.

As of December 31, 2009, Questar’s E&P business held estimated proved reserves of 2,746.9 billion cubic feet of natural gas equivalents located in the Rocky Mountain and Mid-Continent regions of the US and accounted for approximately 57% of the company’s average operating income during the period 2008-2009. The business segments within the proposed spin-off represented 70% of average operating income during this period.

One of the driving factors behind this potential transaction appears to be the competition for internal capital that exists under the current structure. In 2009, for example, the E&P business accounted for 74% of the company’s total $1.5 billion in capital expenditures, thus limiting Questar’s ability to fund expansion opportunities within its more stable, although slower growing, natural gas utility business.

Should the spin-off be enacted, Questar Corporation would become a pure-play, regulated natural gas utility comprising production, transportation, and retail distribution in Utah, Wyoming, and Idaho. This segment generated approximately $1.1 billion in revenue in 2009 and 30% of the consolidated company’s average operating income during the period 2008-2009.

On March 30, 2010, Reuters published an interview conducted with the CEO of Rowan Companies, Inc. (NYSE: RDC), Mr. W. Matthew Ralls, in which Mr. Ralls stated the company’s intention to seek the spin-off of RDC’s onshore drilling and manufacturing divisions. Mr. Ralls stated RDC’s intention to seek such a transaction within the context of transforming RDC into a pure-play offshore drilling company in the near future. RDC has made no formal announcement in regards to the potential spin-off.

RDC’s onshore drilling business consists of twenty-nine land rigs with specifications that are considered ideal for targeting shale and gas plays. The company’s rigs, twenty-four of which are currently contracted, are located in Texas, Louisiana, Oklahoma, and Alaska. During FY2009, this business generated 10% of consolidated revenues (approximately $177 million) and 6% of consolidated EBITDA (approximately $40 million).

RDC’s manufacturing operations, which are conducted via a wholly-owned subsidiary named LeTourneau Technologies, Inc. (‘LeTourneau’), manufactures drilling products and systems, as well as mining, forestry, and steel products. During FY2009, LeTourneau generated 31% of consolidated revenues (approximately $555 million) and 7% of consolidated EBITDA (approximately $47 million).