On January 13, 2010, Cablevision Systems Corp. (NYSE: CVC) announced that the tax-free distribution of Madison Square Garden shares would be completed on February 9, 2010. Cablevision Systems Corp. shareholders as of the record date on January 25, 2010, are expected to receive one share of Madison Square Garden common stock for every four shares of Cablevision Systems Corp. common stock held. Shares of Madison Square Garden are expected to begin trading on the NASDAQ exchange on a when-issued basis under the symbol ‘MSGNV’ on January 25, 2010. Regular way trading of Madison Square Garden shares is expected to begin under the symbol ‘MSG’ on February 10, 2010.

The Dolan family, which controls all of the Cablevision Systems Corp. class B shares, is expected to receive one share of Madison Square Garden class B common stock for every four shares of Cablevision Systems Corp. class B common stock held. Class B shares of Madison Square Garden will not be listed on a securities exchange.

We had previously established a fair value estimate for Madison Square Garden of $35 per share based on an assumed exchange ratio of 1:10. Due to the finalized exchange ratio of 1:4, we are revising our fair value estimate to $14 per share, which includes an estimated $1 billion in capital expenditures related to the planned renovation of the Madison Square Garden complex.

Please refer to our published Spin-Off Report on Madison Square Garden, dated October 13, 2009.

On November 14, 2013, Kimberly-Clark Corporation (NYSE: KMB) announced its Board of Directors had granted management the opportunity to consider a tax-free spin-off of its health care business. A final decision regarding the transaction is expected in the next several months. If the spin-off is given final Board approval, the separation could be completed in 3Q 2014. The health care segment generates about $1.6 billion in annual sales, about 70% in North America. Manufacturing facilities are primarily located in Latin America and Asia, and headquarters are in Roswell, GA. Products include surgical gowns, sterilization wraps, sampling catheters, feeding tubes, medical exam gloves and pain management systems. About 70% of revenue is derived from surgical and infection prevention products and 30% medical devices. During an appearance on CNBC, Chairman and CEO Thomas Falk noted that the health care business is becoming less synergistic as it expands further into the medical device arena. These products require different materials, are sold to distinct end markets (hospitals as opposed to drug or grocery stores) and have a separate sales and marketing team. KMB is one of the world’s largest consumer product businesses with well known brands, including Huggies diapers, Kleenex facial tissues, and Cottonelle toilet paper.

If the spin-off is completed, Thomas Falk would remain CEO of the parent, while the spin-off entity would be led by Robert Abernathy, currently a KMB group president. The transaction, if pursued, would still require a filing of a Form 10, an effectiveness declaration by the SEC of filings, a private letter ruling by the IRS regarding the tax-free status of the transaction, and final Board approval. A sale of the business could also be considered. But given the low tax basis of the assets, a spin-off may make the most sense. A conference call to discuss the potential transaction is scheduled for 10 a.m. (ET) on November 15.

About 51% of KMB’s total revenue is generated in North America. In recent years, the fastest growth has come outside the continent, primarily China, Russia and Latin America. In 2012, North American sales grew less than 1% while revenue outside North America and Europe expanded more than 5%. Without the more North American-centric health care business, KMB might be able to drive stronger growth in emerging markets. Consumer products stocks receive higher multiples than similar health care companies, perhaps due to better international growth prospects. KMB is likely to receive a higher multiple following a possible spin-off. Currently it trades at an EV/EBITDA multiple closer to the health care stocks. The spin entity would likely receive a multiple closer to the current KMB multiple. As a result, the transaction would appear to unlock value for KMB based on this rough, preliminary valuation exercise.

Through the first nine months of 2013, operating profit for the health care business has been flat at $168 million. Last year, the segment generated $288 million in EBITDA. Applying the peer group multiple of 9.8x to $288 million in EBITDA generates a segment enterprise value of $2.8 billion. Subtracting $288 million in health care EBITDA from the consensus KMB 2013 forecast of $4,146 million, results in standalone EBITDA of $3,858 million. Applying a 13.3x multiple (excluding the high outlier) to standalone EBITDA generates an enterprise value for KMB ex. health care of $51.3 billion. Subtracting $6.2 billion in net debt and assuming 383 million shares, the rough sum-of-the-parts estimate is $125 per share. This valuation does not consider higher corporate costs for two public entities.

On September 9, 2013, SAIC Inc. (NYSE: SAI) announced shares of Science Applications International Corp. will be distributed after the market close on September 27, 2013, with regular way trading scheduled to begin on the NYSE on September 30 under the ticker ‘SAIC.’ Shares will be distributed on a 1:7 basis to SAI holders as of September 19, 2013. Trading on a ‘when-issued’ basis is expected to commence on or about September 16. The transaction still requires an effectiveness declaration by the SEC. Following the distribution, SAIC will change its name to Leidos Holdings Inc. and effectuate a 1:4 reverse stock split. Leidos will trade under the ticker ‘LDOS’ on the NYSE beginning on September 30. Following the spin-off, LDOS intends to pay an annual quarterly dividend of $0.32 per share ($0.08 on a pre-split basis) and New SAIC will pay a quarterly dividend of $0.28 per share ($0.04 on a pre-spin basis) equaling the pre-spin quarterly dividend of $0.12 for SAI. Following the first quarterly payout, the respective Boards will determine dividend targets and policy.

As noted in the initial SAIC Inc. Spin-Off Report (April 5, 2013), the fair value calculations would be adjusted based on the finalized distribution ratio, capital structure, dividend policy and changes in company/industry fundamentals. Leidos and Science Applications are scheduled to hold a joint investor day on September 11. Final changes to The Spin-Off Report’s fair values for LDOS and SAIC will be made following the presentations. Please see the SAIC Spin-Off Report and September edition of The Spin-Off Report Calendar (which made adjustments based on changing capital structures) for earlier calculations. The pre-spin sum-of-the-parts valuation totals $14.78 per share. Based on the distribution ratio and reverse split, LDOS is valued at about $44 per share and SAIC is valued at about $26 per share.

On November 12, 2013, Ingersoll-Rand plc (NYSE: IR) conducted an analyst day, providing a first look at operations as a standalone entity Following the presentation, ALLE filed a revised Form 10. IR announced shares of Allegion plc will be distributed on December 1, 2013, with regular way trading scheduled to begin on the NYSE the following day under the ticker “ALLE”. Shares will be distributed on a 1:3 basis to IR holders as of November 22, 2013. Trading on a “when-issued” basis is expected to commence on or about November 18. ALLE management has scheduled a listen-only webcast also on November 18. The transaction still requires an effectiveness declaration by the SEC and final Board approval. The new entity, which will have annual revenue of about $2 billion, will comprise IR’s Security Technologies segment as well as a portion of its Residential Solutions segment. Allegion has a higher operating margin than the businesses that will remain with IR, although in recent years sales have been growing at a slower pace. The peer group trades at a higher multiple than more diverse industrial machinery providers, and as a result ALLE will likely lower its cost of capital. Products include locks, door frames, panic bars and access-control systems.

The security products industry remains fragmented, although Sweden’s Assa Abloy (ASSAB SS) has made a series of acquisitions over the last decade. Just since October 2013, ASSAB has announced acquisitions of privately-held US-based garage door manufacturer Amarr and security fence provider Ameristar Fence Products. As a standalone entity, ALLE may be better positioned than it was as part of IR to play a leading role in the consolidation of the industry. Consolidation could lead to better pricing power in mature markets. Expansion in emerging markets and increased spending on new technologies may offer organic paths to growth.

Following the spin-off, IR’s remaining businesses, which are expected to generate annual revenue of about $12.2 billion, could be compared to a group of large global industrial conglomerates. Following the separation, the heating, ventilation, and air conditioning (HVAC) businesses, including refrigerated transport, will generate a majority of company profits. HVAC businesses trade at slightly higher multiples than their more diverse peers. The valuation of New IR may in part be determined by whether investors view the parent post-spin as an HVAC business with a smaller diversified industrials component or the new entity continues to trade with a conglomerate discount.

As noted in the initial Ingersoll-Rand Spin-Off Report (July 24, 2013), the fair value calculations would be adjusted based on the finalized distribution ratio, capital structure, dividend policy and changes in company/industry fundamentals. The valuation is based on comparable multiples for diversified industrials and HVAC manufacturers and assuming about 60% of post-spin profitability is generated by HVAC and refrigerated transport markets. IR has guided for stand-alone 2013 EPS of $2.55 to $2.60 per share. Applying peer group multiples to projected 2013 EPS generates a fair value of $51 per share. Assuming the $1.3 billion cash distribution from ALLE at the time of separation is used to repurchase 25.4 million shares, the fair value rises to $56 per share (see attachment). One may also consider takeover multiples in both those businesses. (See the initial Ingersoll-Rand Spin-Off Report, pages 18-20, for those valuation exercises.)

Management will not provide guidance for 2014 until the 4Q conference call. For the three-year period through 2016, management targets are for 4-5% revenue CAGR, and 13-15% operating income CAGR, although 2014 is likely to account for the slowest growth in that three-year period. IR expects to pay out 30-35% of earnings as a dividend. Prior to separation, the payout ratio was closer to 25%.

The fair value for ALLE will likely be revisited following Monday’s investor webcast. Through the first nine months of 2013, EBITDA has grown about 5% when adding back a $138 million asset impairment charge. Similarly, analysts project closest peer, ASSAB SS, will grow EBITDA 5% in 2013. If one assumes full year ALLE EBITDA growth of 5% to $433 million, applies a 12.5x multiple (the multiple for ASSAB prior to last month’s acquisition announcements, which are not likely fully incorporated into next year’s EBITDA estimate), subtracts $1.15 billion in net debt, and utilizes a 96 million share count, the ALLE fair value is $44 per share. Upside to the valuation would likely be through synergistic acquisitions. For instance, ASSAB noted that both of its recent acquisitions will be immediately accretive to earnings.

One may also consider the acquisitions ASSAB has made in recent years in order to grow into a significant global security products manufacturer. Of course, given the timing of the spin-off, it is unlikely due to tax consequences that ALLE would be a takeover candidate for two years. According to Bloomberg, ASSAB has made 98 acquisitions since 1998, ten sizable enough for full financial disclosure. ASSAB paid 11.5x trailing EBITDA for those acquisitions. One of its largest was the $1.6 billion tender offer (commenced in December 2010 and completed in February 2011) for industrial door maker Cardo AB, which was valued at 11.5x trailing EBITDA. Applying the Cardo and historical acquisition multiples to ALLE’s 2013E EBITDA results in a $40 per share valuation for ALLE.

On November 4, 2013, Weyerhaeuser Co. (NYSE: WY) announced plans to separate its homebuilding and real estate development business, WRECO, in a spin-off or split-off and immediately merge it with homebuilder TRI Pointe Homes Inc. (NYSE: TPH). The separation still requires final Board and TPH shareholder approval, a declaration of effectiveness by the SEC, and any additional regulatory approvals. The merger will be structured as a Reverse Morris Trust transaction, which would maintain the tax-free status of the separation. Following the transaction, WY shareholders would control approximately 80.5% of the newly merged company, which will retain the TRI Pointe Homes corporate moniker. TPH’s current management will remain in place, including CEO Doug Bauer and Chairman Barry Sternlicht, who is also CEO and Chairman of Starwood Capital. The deal is valued at $2.7 billion based on 130 million new shares of TPH exchanged for shares of WRECO, based on TPH’s closing price November 1, 2013, and a $700 million cash distribution paid to WY. The merger is expected to be completed in 2Q 2014.

TPH is a regional homebuilder with operating divisions in Northern California, Southern California, and Colorado. The addition of WRECO gives significant scale and an entrance into new markets for TPH’s business. WY’s real estate business has generated EBIT of $47 million through 3Q 2013, versus $24 million through 3Q 2012. Housing market strength has resulted in increased home closings at higher prices over the last 18 months.

Given the potential early stages of a housing recovery, the timing of the spin-off would appear to make sense, particularly if one viewed the company’s land holdings as undervalued as part of a larger entity. In WY’s latest earnings release, the company guided for continued growth in the real estate business while wood products and timberland results are expected to be relatively flat. The new entity will have 25,096 owned lots. Assuming continued housing strength through the remainder of 2013, one could project WY real estate segment EBITDA of $173 million. If one adds in a $21 million contribution from TPH and applies the peer group 16x multiple (excluding one outlier), a value of $3.1 billion can be reached.

Following the separation, WY will focus on its forest products business, which includes 20.8 million acres of timberland, primarily located in North America, with over 315,000 acres in Uruguay. In June 2013, WY purchased Longview Timber LLC for $2.65 billion, which included approximately 645,000 acres in the Washington and Oregon. Separating the homebuilding businesses should result in reduced earnings volatility with a focus on returning capital to shareholders through dividend payment and potential share repurchases. Excluding the home building businesses the company generated $1.2 billion in EBITDA through 3Q 2013 which represented 53% growth over the first nine months of 2012. Using that growth rate, full-year EBITDA could be projected at $1.66 billion. On average, forest products companies trade at approximately 13.5x 2013E EBITDA. Applying that multiple to projected 2013 EBITDA results in an enterprise value of $22.3 billion, near where the stock currently trades. The two other forest REITs (Plum Creek and Rayonier) on average yield 4%. If WY maintains its current $0.88 dividend (annual distributions of $513 million, less than 33% of projected EBITDA) shares may receive a similar yield, which would imply WY would be worth $22 per share.

On October 31, 2013, Starwood Property Trust (NYSE: STWD) filed a Form 10 to spin off its single-family residential business, including single-family home rentals and related home loans, into a separate publicly traded REIT to be called Starwood Waypoint Residential Trust. The REIT is expected to be listed on the NYSE under the ticker “”SWAY””. Shares will be distributed on a 1:5 basis to STWD holders of record as of January 24, 2014. The transaction is expected to be completed on February 3. Management anticipates that the spin-off will be treated for tax purposes as a distribution equal to the value of the distributed SWAY shares. STWD Chairman and CEO Barry Sternlicht will also serve as Chairman of SWAY. The deal requires final Board approval as well as an effectiveness declaration by the SEC. STWD will retain its commercial mortgage loans and commercial debt investments in a mortgage REIT. The transaction could be viewed as similar in nature to the separation of the commercial and residential pieces of Newcastle Investment Corp. (NYSE: NCT) with the creation of New Residential (NYSE: NRZ) in May 2013. One might expect that SWAY will trade at a higher price/book or lower dividend yield, given its hard assets, than as part of a larger mortgage REIT.

The Spin-Off Report Radar Screen has highlighted STWD since June 2013. STWD is externally managed and advised by SPT Management, LLC, an affiliate of Starwood Capital Group. STWD also announced that it had acquired Waypoint Real Estate Group, a leading vertically integrated single-family rental operating platform. Terms were not disclosed. Waypoint’s co-CEOs, Gary Beasley and Doug Brien, will serve as co-CEOs of SWAY.

As of June 30, 2013, net book value of SWAY’s residential real estate, which includes 5,817 single-family home units that are being prepared for rental or sale, and non-performing residential loans (NPLs), totaled about $581 million. STWD expects to contribute $100 million in cash to the entity. According to the company’s press release announcing the spin-off, the book value of SWAY’s properties as of September 30, 2013, was $198 million while unpaid principal on the NPL portfolio was $413 million, for a total value of about $711 million (including the $100 million cash contribution). Based on the peer group price/book of 1.0x, and assuming a 1:5 share distribution, SWAY could be valued at $21 per share based on this rough, preliminary exercise. The peer group includes single-family home rental REIT American Homes 4 Rent (NYSE: AMH), which raised $706 million through an August 2013 IPO, and Silver Bay Realty Trust (NYSE: SBY), an owner of single-family residential homes, which went public in late 2012.

As STWD generally trades on the basis of dividend yield, and the possible assets in the spin entity do not contribute at all to the dividend, the value of the standalone parent should not change substantially following a separation. The dividend will remain unchanged. As of yesterday’s market close, STWD had a 7.2% yield, based on a $1.84 per share annual dividend. Other commercial mortgage REITS trade at about an 8.8% yield. Based on STWD’s current yield as well as the peer group yield, STWD could be valued in a range of $21-$25 per share.

On November 7, 2013, The Ensign Group Inc. (NASDAQ: ENSG) filed a Form 10 to spin off its real estate into a separate publicly traded REIT to be called CareTrust REIT Inc. through a tax free distribution of shares to shareholders. The REIT has applied to be listed on the NASDAQ under the ticker “”CTRE””. The transaction is expected to be completed in 1Q 2014. Following the separation, ENSG will manage approximately 116 skilled nursing centers and managed care facilities in California, Arizona, Texas, Washington, Utah, Idaho, Colorado, Nevada, Iowa, Nebraska and Oregon. CTRE will hold all of the ENSG properties and will manage three independent living facilities. The remaining properties will be leased back to ENSG on a triple net basis.

The transaction appears similar to the spin-off of Sabra Health Care REIT Inc. (NASDAQ: SBRA) by Sun Healthcare Group Inc. in November 2010. Sun was acquired by privately held Genesis HealthCare in 2012 for $215 million, excluding $89 million of Sun debt. Ensign’s management team will remain in place other than Executive Vice President Gregory Stapley, who will assume the duties of CEO and President of CTRE. REITs do not pay federal income tax but are required to return 90% of earnings to shareholders as dividends. The beneficial tax rules and high payout rates have made REITS particularly popular in recent years as investors pursue strong yields. However, not more than 50% of the stock may be held by five or fewer individuals. The separation still requires a private letter ruling from the IRS regarding the tax free nature of the spin-off, an effectiveness declaration of the filings by the SEC and final Board approval.

CTRE may initially trade at a discount to other nursing home REITS given its “”single tenant risk.”” However, CTRE’s strategy appears to be to expand and diversify via acquisition once it begins operating as an independent entity. Assuming these acquisitions are done with equity, this should have a positive impact on the company’s interest coverage ratio and help promote the diversification of the tenant portfolio, which could lead to an erasure of the discount. However, this may lead to merger risk given potential overpaying for acquisitions and integration issues.

The peer group of senior living REITs with one or limited tenants trades at 2.8x book, 1.6x EV/assets and 8.6x sales. Applying those multiples, to CTRE’s assets and book as of June 30, 2013 (from the Form 10) and projected $59 million in rent from ENSG, provides a range of market capitalizations from $507 million to $582 million, or $23 to $26.50 per share based on a 1:1 share distribution (see attached exhibit). The EV/assets valuation assumes CTRE initially has $166 million in net debt as a result of a cash distribution to the parent. The limited tenant peer group trades at about a dividend yield of 5.7%, above the 5% for the wider health care REIT group. As CTRE accumulates tenants, its valuation multiple could expand.

The valuation for ENSG is based on the midpoint of 2013 net income guidance of $59.4 million and adding back projected full year taxes, interest and D&A for a total EBITDA of $138 million. Subtracting $59 million in projected rent results in post-spin ENSG forecasted EBITDA of $79 million. Applying the peer group multiple of 6.7x 2013 EBITDA results in an EV of $529 million. Assuming no debt, the fair value per share estimate from this rough, preliminary exercise is about $24. The sum-of-the-parts valuation range is $47 to $50.50 per share.

On October 30, 2013, United Online Inc. (NASDAQ: UNTD) reported 3Q 2013 sales of $174.7 and adjusted EPS of $0.12. The FTD business, an Internet and telephone marketer of flowers and specialty gifts, was essentially flat year over year, while revenue declined about 8% year over year at New United Online. The content and media segment, mainly UNTD’s Classmates business, continued to report paid subscription reductions. However, the quarterly decline of 30,000 paid accounts (2.9% churn rate) is the lowest since UNTD acquired the Classmates business. The communications segment also experienced a reduction in paid accounts from dial-up users as UNTD invests heavily in its wireless operations. (UNTD primarily provides dial-up Internet service under the NetZero and Juno brands, but also has entered the wireless 4G market, a potential growth area.) These results do not materially change The Spin-Off Report’s fair value estimates for either entity.

Shares of FTD Companies Inc. will be distributed before the market opens on November 1, 2013, with regular way trading scheduled to begin on the NASDAQ under the ticker ‘FTD’ the same day. Shares will be distributed on a 1:5 basis to UNTD holders as of October 10, 2013. In addition, UNTD will conduct a 1:7 reverse stock split prior to initial trading as a standalone business. Shares of UNTD could be under initial trading pressure given the long-term outlook for dial-up internet providers. Shares of UNTDV closed last night at $11.82, well below The Spin-Off Report’s fair of $15.82, based on the initial cash level and a reasonable cash flow yield for a declining business. UNTD will have net cash of about $6 per share following the separation. Continued weakness in shares could provide an attractive entry point if the market capitalization approaches cash.

The fair value estimate for FTD is $30.71 per share, largely utilizing recent valuation multiples for close peer 1-800-Flowers.com (NASDAQ: FLWS). Please see the original United Online Inc. Spin-Off Report dated June 6, 2013, and FLASH note, dated October 1, 2013, for more details.

On October 30, 2013, Ashford Hospitality Trust Inc. (NYSE: AHT) announced shares of Ashford Hospitality Prime Inc. would be distributed after the market close on November 19, 2013, with regular way trading scheduled to begin on the NYSE on November 20, 2013, under the ticker ‘AHP.’ Shares will be distributed on a 1:5 basis to AHT holders as of November 8, 2013. Trading on a ‘when-issued’ basis is expected to commence on or about November 6, 2013. The transaction still requires an effectiveness declaration by the SEC.

Prime’s portfolio includes some of the premier hotels in AHT’s portfolio, generating RevPAR (revenue per available room) of about $140 in 2012. The spin entity will also enter into option agreements with Ashford Hospitality to acquire two additional upscale properties. Ashford Prime will be externally advised by Ashford Hospitality Advisors LLC, which is a subsidiary of AHT. Following the separation, AHT’s portfolio will consist of 114 hotels with 2012 RevPAR of approximately $95.

As noted in the initial Ashford Hospitality Trust Spin-Off Report (July 17, 2013), the fair value calculations would be adjusted based on the finalized distribution ratio, capital structure, dividend policy and changes in company/industry fundamentals. The adjustments for AHT and AHP are based on a lower share count than previously estimated, the 1:5 distribution ratio, and changes in debt levels. AHT will have net debt of $2.8 billion (previously $2.5 billion) while AHP will carry $483 million in net debt (previously $614 million).

Ashford Hospitality Trust’s post spin fair value has been revised to $10.50 (from $10.76), reflecting higher net debt, partially offset by an increase in AHT’s current EV/EBITDA multiple to 12.4x (from 11.7x). The fair value includes $1.06 per share in value attributed to AHT’s 20% ownership stake in AHP. Upside exists to $11.70 if AHT’s multiple were to expand to the peer group average of 12.8x. AHT will initially maintain the current $0.12 quarterly dividend, which would represent a yield of 4.6% based on the revised fair value. Maintenance of the dividend may provide support for the stock following the transaction given the healthy yield compared to the peer group.

Ashford Hospitality Prime’s fair value estimate has been revised to $21.30 (previously $17.75 based on the 1:5 distribution). The fair value is reached by applying a peer group (high RevPAR hotel REITs) multiple to estimated 2013 EBITDA, as well as valuing hotel assets based on a multiple of RevPAR. Prime will initially set a $0.01 quarterly dividend. The combined dividend of the two entities will be 8% higher than pre-spin AHT. Additionally Prime appears to have ample room to increase the dividend payout as the $0.04 annual dividend represents approximately 22% payout of adjusted funds from operations.

On October 24, 2013, DuPont Co. (NYSE: DD) announced its Board of Directors approved plans to spin off its performance chemicals unit into a separate publicly-traded company through a tax-free distribution of shares to DD shareholders. DD will retain its segments focused on products for the agriculture, healthcare, food, and consumer electronics industries. The separation will allow DD to focus on its faster growth and steadier-margin specialized product segments, which will likely generate a higher multiple following the transaction. The spin-off is expected to be completed within 18 months. The transaction still requires an effectiveness declaration of filings by the SEC, confirmation of the tax status of the separation, and final Board approval. Management expects both companies to pay dividends in total that equal the parent’s dividend prior to separation. Capital structures and the share distribution ratio were not disclosed.

The Spin-Off Radar Screen highlighted DD beginning in August 2013. Since then, the stock is up nearly 7%, compared to a 2.7% rise for the S&P 500. Management initially disclosed that it was exploring strategic alternatives for the cyclical, commoditized performance chemicals segment, which includes Teflon and titanium dioxide manufacturing, in July 2013. Activist investor Nelson Peltz’s Trian Fund Management has been accumulating a stake in the company. However, management denied that discussions with Peltz led to the exploration of strategic alternatives. The exodus of the more cyclical business will follow the path pursued by specialty chemicals producer PPG Industries Inc. (NYSE: PPG) earlier this year. In late January 2013, PPG spun off its lower-margin, low-growth commodity chemicals business, which merged with Georgia Gulf to create Axiall (NYSE: AXLL). PPG is up 28% since the spin-off, compared to a 16% rise for the S&P 500. PPG trades at about 22x forward EPS (DD is at 16x) and 12x forward EBITDA (DD is at 10x). Commodity chemical producers such as AXLL trade at around 6.6x EBITDA and 11x EPS.

Performance chemicals accounted for about 18% of DD’s revenue in the first nine months of 2013 and 15% of segment income. Segment operating income fell more than 50% year over year through the first three quarters of 2013 due to lower titanium dioxide pricing. This chemical is used primarily as a white pigment for paints, coatings, paper, and toothpaste, among others. A competitor noted in September 2013 that the market for titanium dioxide appeared to be bottoming, while DD announced price increases. DuPont’s other product lines, which will remain with the parent, include well known brands such as high-strength material Kevlar, used in products ranging from body armor to bicycle tires, and moisture-protection material Tyvek, used in envelopes, medical packaging and construction.

Diversified chemicals producers including DD and Ashland Inc. (NYSE: ASH) trade at a sharp discount to specialized chemicals producers. ASH has also been highlighted on The Spin-Off Radar Screen for the potential to spin off lower-margin or non-core businesses. One might expect DD to trade closer to specialized chemicals producers following the separation while the spin entity may trade at a similar valuation to commodity chemical providers.

The consensus 2013 EBITDA projection for DD is about $6.6 billion. As an exercise, one may assume that performance chemicals accounts for about 15% of total company EBITDA (the segment generates slightly more than 15% of corporate D&A). Applying a 6.6x multiple, in line with the peer group, to segment EBITDA of $1 billion generates an enterprise value of $6.6 billion. Applying an 11.6x multiple to remaining EBITDA of about $5.6 billion results in an EV of $65 billion. Based on net debt of $8.1 billion and a share count of 926 million, the pre-spin sum-of-the-parts value through this rough, preliminary exercise is about $68.50 per share. The stock closed yesterday at $61.38.