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.

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.