On Thursday, August 1st, Amcor Limited (Ticker: AMC AU, Market Capitalization: AUD 12.96 billion) announced its intention to demerge the fiber, metal, glass and packaging distribution segment known as Australasia & Packaging Distribution (AAPD). Amcor is an international packaging company, offering packaging products, distribution and recycling services. Based in Melbourne, the company derives the majority of its revenues from the United States and Australia. Though the company has yet to publish detailed information related to the respective pro forma financial performance and capital structures of post spin-off Amcor and AAPD, it expects to do so at some point in November. And though the precise date for the shareholders’ meeting has yet to be scheduled, completion of the spin-off is expected during December 2013, with the spun off company expected to be listed on the Australian Securities Exchange (ASX).

Amcor comprises five business segments (including AAPD). The largest segment is Flexible Packaging, which manufactures products such as fresh and processed food packaging, hospital supplies and specialty packaging. Amcor also operates in tobacco packaging through its Tobacco and Specialty Packaging unit and through its 48 percent stake in AMVIG Holdings Limited. Additionally, Amcor, through its Rigid Plastics business, is the world’s largest manufacturer of PET containers. In contradistinction, while the parent company is expected to retain those assets focused on flexible and rigid plastics, the spin-off will comprise those operations involved in the production of fiber, glass and aluminum can products in Australasia and packaging distribution in North America and Australia (i.e., AAPD).

On Thursday, August 1st, Amcor Limited (Ticker: AMC AU, Market Capitalization: AUD 12.96 billion) announced its intention to demerge the fiber, metal, glass and packaging distribution segment known as Australasia & Packaging Distribution (AAPD). Amcor is an international packaging company, offering packaging products, distribution and recycling services. Based in Melbourne, the company derives the majority of its revenues from the United States and Australia. Though the company has yet to publish detailed information related to the respective pro forma financial performance and capital structures of post spin-off Amcor and AAPD, it expects to do so at some point in November. And though the precise date for the shareholders’ meeting has yet to be scheduled, completion of the spin-off is expected during December 2013, with the spun off company expected to be listed on the Australian Securities Exchange (ASX).

Amcor comprises five business segments (including AAPD). The largest segment is Flexible Packaging, which manufactures products such as fresh and processed food packaging, hospital supplies and specialty packaging. Amcor also operates in tobacco packaging through its Tobacco and Specialty Packaging unit and through its 48 percent stake in AMVIG Holdings Limited. Additionally, Amcor, through its Rigid Plastics business, is the world’s largest manufacturer of PET containers. In contradistinction, while the parent company is expected to retain those assets focused on flexible and rigid plastics, the spin-off will comprise those operations involved in the production of fiber, glass and aluminum can products in Australasia and packaging distribution in North America and Australia (i.e., AAPD).

With respect to the relative financial metrics of the two companies, AAPD comprised 23.7 percent of revenues and 13.5 percent of profits before interest and taxes (PBIT) and operated with a 5.0 percent PBIT margin—compared to a 10.5 percent margin for the non-AAPD business—on a trailing twelve month basis through December 31, 2012. Based on Amcor’s current market capitalization of AUD 12.96 billion, the new entity could be valued at approximately AUD 1.75 billion. It should be noted, however, that Amcor currently trades at a significant premium to its peers, both on a price-to-earnings basis (i.e., 29 times compared to 17 times) and on a price-to-sales basis (i.e., 1.07 times compared to 0.84 times). Additional details regarding the potential valuations of both the parent and the spin-off will follow in our full report to be published following the release of the demerger scheme document in November.

On Monday, July 8th, Pharmstandard OJSC (Tickers: PHST RU, PHST LI; Market Cap: US$2.2 billion) announced that its Board of Directors has decided to spin off the company’s branded over-the-counter pharmaceuticals business. On Wednesday, July 10th, the company held an investor conference call and confirmed that the spin-off would indeed be publicly listed on the Moscow Exchange (MICEX). Given past spin-off activity in Russia, there were concerns that the spun-off entity would not maintain a public listing, much to the detriment of its minority shareholders. Most notably, however, many details surrounding the ultimate structure of the transaction continue to remain unknown and under suspicion. 

For example, the company’s recent proposal to acquire Bever Pharmaceutical Pte. Ltd. appears to be a related party transaction with one of the company’s board members, and, yet, management not only refuses to acknowledge this conflict of interest but has failed to release any salient details regarding the transaction—that is, apart from the purchase price of US$630 million. What exactly is being acquired is not yet clear. Also cause for confusion and concern is management’s decision to offer those shareholders opposed to the spin-off proposal RUB2,180 per share—or approximately US$16.50—a discount of nearly 25 percent to the trailing 30 day average price of the more liquid global depositary receipts and cause of the recent 30 percent drawdown. 

Pharmstandard is Russia’s largest publicly-traded pharmaceuticals company and is 54 percent owned by Augment Investments Limited, the investment holding company of Chairman Viktor Kharitonin, et alia. Until 2008, Augment’s shareholders also included noted Russian oligarchs Roman Abramovich and Evgeny Shvidler. 

Pharmstandard produces more than 250 pharmaceutical products, including drugs for treatments of cardio-vascular diseases, diabetes, growth hormone deficiency, gastroenterological, neurological, contagious diseases, metabolic disorders, cancer and other diseases. The company’s branded over-the-counter pharmaceuticals business is Russia’s second largest by sales—Novartis being the country’s largest provider—and includes 27 branded over-the-counter products, including drugs for the cold and flu, non-narcotic analgesics and antipyretics (e.g., aspirin), and multivitamins. 

During 2012, Pharmstandard reported revenue and EBITDA of RUB51.4 billion and RUB13.5 billion, respectively. By comparison, the branded over-the-counter pharmaceuticals business reported revenue and EBITDA of RUB12.7 billion and RUB4.5 billion. 

Additional information will be released in the forthcoming circular, which is expected to be published in August or September. Following shareholder approval, the spin-off shares are expected to begin trading in either November or December of this year.”

On Sunday, July 7th, Reliance Communications Limited (Ticker: RCOM IN; Market Cap: US$4.9 billion) announced that its Board of Directors has decided in-principle on the demerger of certain real estate assets held by the company into a separate unit known as Reliance Properties Limited. The demerger will not impact the profitability of Reliance Communications since the real estate assets to be included as part of the separation are not currently being utilized by the telecommunications business. 

Reliance Communications is India’s largest telecommunications services provider, is the flagship company of the Reliance Group and is 68 percent owned by Anil Ambani, one of India’s wealthiest individuals. With a value of nearly US$3.4 billion, Reliance Communications is the largest personal holding of Anil Ambani and represents nearly half of his personal net worth. The proposed separation of the real estate assets into a separate company is part of the company’s strategic plan to divest non-core assets in order to focus on the core wireless and enterprise business. 

Reliance Properties will be a separately listed company, with all shareholders of Reliance Communications expected to receive a pro rata distribution of Reliance Properties shares free of cost and based on the existing shareholding in the parent company. The preliminary estimated value of the real estate upon its eventual development has been estimated at approximately US$2 billion, or the equivalent of approximately INR 60 per Reliance Communications share. The proposed development properties that will comprise Reliance Properties include: 

1. Land at Dhirubhai Ambani Knowledge City, Navi Mumbai amounting to nearly 135 acres and with a saleable area of over 15 million square feet; and, 

2. Property near Connaught Place, New Delhi amounting to nearly 4 acres. 

The Board of Directors has constituted a committee to formally consider the proposed separation in detail and to prepare the necessary demerger scheme documents. The proposed demerger remains subject to approvals from shareholders, lenders, courts, etc. Additional information—namely, the proposed capital.

On Sunday, July 7th, Reliance Communications Limited (Ticker: RCOM IN; Market Cap: US$4.9 billion) announced that its Board of Directors has decided in-principle on the demerger of certain real estate assets held by the company into a separate unit known as Reliance Properties Limited. The demerger will not impact the profitability of Reliance Communications since the real estate assets to be included as part of the separation are not currently being utilized by the telecommunications business.
 
Reliance Communications is India’s largest telecommunications services provider, is the flagship company of the Reliance Group and is 68 percent owned by Anil Ambani, one of India’s wealthiest individuals. With a value of nearly US$3.4 billion, Reliance Communications is the largest personal holding of Anil Ambani and represents nearly half of his personal net worth. The proposed separation of the real estate assets into a separate company is part of the company’s strategic plan to divest non-core assets in order to focus on the core wireless and enterprise business.
 
Reliance Properties will be a separately listed company, with all shareholders of Reliance Communications expected to receive a pro rata distribution of Reliance Properties shares free of cost and based on the existing shareholding in the parent company. The preliminary estimated value of the real estate upon its eventual development has been estimated at approximately US$2 billion, or the equivalent of approximately INR 60 per Reliance Communications share. The proposed development properties that will comprise Reliance Properties include:
 
1. Land at Dhirubhai Ambani Knowledge City, Navi Mumbai amounting to nearly 135 acres and with a saleable area of over 15 million square feet; and,
 
2. Property near Connaught Place, New Delhi amounting to nearly 4 acres.
 
The Board of Directors has constituted a committee to formally consider the proposed separation in detail and to prepare the necessary demerger scheme documents. The proposed demerger remains subject to approvals from shareholders, lenders, courts, etc. Additional information-namely, the proposed capital” – The Spin-Off Report

On Tuesday, July 2nd, Brambles Limited (Ticker: BXB AU) announced its intention to demerge its information management business through the demerger of Recall Holdings Limited on the Australian Securities Exchange (ASX). Brambles is a pooling solutions company specializing in the provision of reusable pallets, crates and containers and associated logistics services. Brambles will not retain any shareholding in Recall following the demerger. Brambles expects to distribute a scheme book to shareholders in October 2013 containing a recommendation from the Brambles Board in respect of the demerger. Brambles currently intends to convene a meeting for shareholders to vote on the demerger proposal in December 2013. It is expected that the listing of Recall Holdings will occur shortly thereafter.

SM-SAAM is a company with a relatively stable set of businesses, a high degree of recurring revenue and excellent long-term expansion prospects. At a price below CLP 53, the shares are recommended for purchase.
 
If the company does not make significant changes to its capital structure, an appropriate base-level valuation range for the stock is roughly CLP 49.45 to CLP 70.86. Due to the conservative nature of its chosen business segments within the shipping industry and the company’s low leverage, a further decline in price would appear to be less likely. On the other hand, should SM-SAAM’s management decide to expand its operating asset portfolio and aggressively expand by issuing debt, and recent joint venture activity is suggestive of this strategic direction, returns could be even higher.

Our target price for 2016, under such a scenario, ranges from CLP 79.83 to CLP 89.06. Combined with dividends, which are expected to represent 30% of the company’s net income, annualized returns could surpass 17.5% over the four-year period. Lastly, there is additional optionality. SM-SAAM is a good strategic fit for Royal Boskalis Westminster, the company that has completed two similar acquisitions since 2009. With a potential acquisition price of CLP 67.04 to CLP 96.07, such an option could be the fastest way to monetize an investment in SM-SAAM.

Metso Corporation (MEO1V FH) today announced that its Board of Directors has approved a demerger plan that will separate the company’s Pulp, Paper and Power businesses from its Mining and Construction and Automation businesses. The newly-formed Pulp, Paper and Power company is to be named Valmet Corporation and is expected to be listed on the NASDAQ OMX Helsinki stock exchange. Metso Corp. is not expected to retain any ownership in Valmet Corp. The demerger is scheduled to be completed on December 31, 2013, assuming all necessary approvals are obtained. The company has already received confirmation that the demerger will be treated as tax-neutral in Finland.

After a yearlong restructuring process that appears to have been successful, we reiterate our purchase recommendation. As reviewed in the body of this report, an appropriate fair value is likely CLP 48.53, 24% higher than the current stock price of CLP 39.20, even if the containership market were to remain weak. Investors should be aware that CSAV operates in a very volatile industry; prolonged weakness in freight rates could force CSAV to raise even more equity, putting downward pressure to the stock price. On the other hand, strong economic growth could result in a substantially higher fair value than what is suggested by our high case, which relies on relatively conservative assumptions.

On Friday, May 3rd, the Board of Directors of Milan-listed Autogrill S.p.A. (Ticker: AGL IM) approved the separation of the company’s Travel Retail & Duty Free business known as World Duty Free S.p.A. Autogrill is an owner-operated business controlled by Italy’s Benetton family. The company is the world’s leading provider of food, beverage and retail services for travelers and currently operates across two divisions: Food & Beverage and Travel Retail & Duty Free.

Autogrill has Food & Beverage operations at major travel facilities such as airports, motorways and railway stations across Europe, North America and Asia. The Travel Retail & Duty Free business operates airport concessions. The largest market is Europe, though the division is also active in the Middle East, the Americas and Asia.

During 2012, the Food & Beverage division generated revenue and EBITDA of €4,076 million and €356 million, respectively, or an EBITDA margin of 8.7%. In contrast, Autogrill’s Travel Retail & Duty Free business generated revenue and EBITDA of €2,002 million and €262 million, respectively, or a meaningfully higher EBITDA margin of 13.1%.