On Wednesday, April 17th, the Board of Directors of Paris-listed PPR (Ticker: PP FP) approved the distribution of the company’s mass-market entertainment and leisure products business known as Groupe Fnac. Formerly known as Pinault-Printemps-Redoute, PPR is a family-controlled business increasingly focused on apparel and accessories across two divisions: Luxury and Sport & Lifestyle.

The company’s Luxury division includes several iconic brands such as Gucci, Bottega Veneta, Saint Laurent, Alexander McQueen, Balenciaga, Brioni, Christopher Kane, Stella McCartney, Sergio Rossi, Boucheron, Girard-Perregaux, JEANRICHARD and Qeelin. The Sport & Lifestyle division includes the brands Puma, Volcom, Cobra, Electric and Tretorn.

During 2012, the Luxury and Sport & Lifestyle divisions generated revenue and EBITDA of €9,736 million and €2,067 million, respectively, or an EBITDA margin of 21.2%. In contrast, Groupe Fnac’s mass-market entertainment and leisure products business generated revenue and EBITDA of €4,061 million and €144 million, respectively, or a meaningfully lower EBITDA margin of 3.5%.

It is expected that the proposed distribution of Groupe Fnac will be approved at the annual shareholders’ meeting on June 18th. Once approved, shareholders will receive one Groupe Fnac share for every eight PPR shares. The company is expected to distribute a maximum of 15,764,588 Groupe Fnac shares, representing slightly less than 95% of Groupe Fnac’s share capital. From a tax perspective, the distribution of Groupe Fnac shares will be treated as a dividend distribution to PPR shareholders. Application will be made to admit the Groupe Fnac shares to trading on the NYSE Euronext Paris.

With respect to timing, it is expected that the company will release a circular outlining the details of the proposed distribution in early May 2013. Following shareholder approval on June 18th, it is expected that PPR’s shares will trade ex entitlement beginning on June 20th, with the listing of Groupe Fnac shares expected the same day. Also note that PPR will be renamed Kering, subject to shareholder approval at the annual meeting. All information relating to Groupe Fnac’s listing and the distribution of Groupe Fnac shares to Kering shareholders will be available in the Finance section of www.kering.com.

Brookfield Asset Management (NYSE: BAM, BAM CN) announced that it will distribute shares of Brookfield Property Partners (NYSE: BPY, BPY CN) to shareholders of record as of March 26, 2013. Shareholders will receive a special dividend, payable on April 15, 2013, of one unit of Brookfield Property Partners (“BPY”) for every 17.42 shares held of Brookfield Asset Management (“BAM”), or 0.0574 BPY units for each BAM share. Immediately following the distribution, BAM will own approximately 92.5% of BPY, while BAM shareholders will own the remaining 7.5%. Both BPY units and BAM shares, ex-distribution, are expected to begin trading on a “when-issued” basis on March 22, 2013 under the tickers “BPY WI” and “BAM WI” on the NYSE and under the tickers “BPY.UN” and “BAM.W” on the TSX.
 
BPY continues to target a dividend pay-out ratio equal to 80% of its funds from operations, and has guided to an initial annual dividend of $1.00 per unit ($0.25 per unit paid quarterly). As such, we maintain our fair value estimate of $25 per share. Please see our Brookfield Property Partners Global Spin-Off Report dated February 12, 2013 for further details.

On Tuesday, February 5th, the Board of Directors of Helsinki listed YIT Corporation (Ticker: YTY1V FH) announced that it had initiated preparations for the separation of the company’s Construction Services and Building Systems businesses.
According to the initial plan, YIT will continue to operate the Construction Services business across two divisions: Construction Services Finland and International Construction Services. The Construction Services business operates across the residential, commercial and infrastructure construction sectors. During 2012, the Construction Services business reported net sales and EBIT of €1,929 million and €201 million, respectively, or an operating margin of 10.4 percent.

On Wednesday, January 23rd, Siemens AG held its Annual Shareholders’ Meeting, at which time 98
percent of shareholders approved the proposed spin-off of the company’s lighting unit, Osram Licht AG.
Osram is one of the world’s top two lighting manufacturers, Royal Philips Electronics NV (Tickers: PHIA
NA, PHG US) being the company’s primary competitor. The company’s portfolio includes the most basic
lighting components such as light bulbs, as well as more technologically advanced products, including
light-emitting diodes, light management systems and high-efficiency lighting solutions.

During fiscal 2011 and 2012, Osram generated revenue of €5,032 million and €5,400 million, respectively,
a year-over-year increase of 7.3 percent. During the same periods, pre-tax net income amounted to a profit
of €486 million (2011) and a loss of €87 million (2012), respectively.1 Notably, however, the pre-tax loss
of €87 million reported for fiscal 2012 includes pre-tax impairment costs of €443 million, resulting in an
adjusted pre-tax profit of €356 million. The company has stated that as part of the spin-off plan aggressive
cost cutting measures are expected, including a 20 percent reduction in the company’s workforce. The
company expects such measures to result in a pre-tax profit of €512 million by 2015.

The decision to spin off Osram is a departure from the company’s original plan to dispose of the division
through an initial public offering, a plan that was originally proposed in March 2011. The spinoff is
expected to take effect as soon as it is entered in the German Commercial Registers, a step that is expected
to take place in April 2013 at the earliest.

Osram shares are then to be immediately admitted to trading in the Regulated Market of the stock
exchanges in Frankfurt and Munich as well as in the Prime Standard of the Frankfurt Stock Exchange. For
every ten Siemens shares, Siemens shareholders will receive one share of OSRAM Licht AG. Notably,
after the spin-off, Siemens AG intends to hold a 17 percent stake in Osram, with the Siemens Pension Trust
receiving a 2.5 percent stake in the new company.

On Monday, January 14th, United Parcel Service, Inc. (Ticker: UPS US) withdrew its €9.50 per share all cash offer for Dutch express delivery company TNT Express NV (Ticker: TNTE NA). TNT Express was originally recommended by this publication following its spin-off from Dutch incumbent mail services provider PostNL NV (Ticker: PNL NA) in May 2011. 

As a result of what we presume to be significant selling pressure from the merger arbitrage community, the share price of TNT Express has declined substantially and now trades at approximately €5.30 per share. It has been suggested that prior to the failure of merger negotiations over 30 percent of the shareholder base was comprised of arbitrageurs. 

We expect that as selling pressure from the merger arbitrage community dissipates, shares of TNT Express will trade substantially closer to our original fair value estimates. And, of course, should additional bids arise, we would expect such offers to approximate the €9.50 offer from United Parcel Service. It is important to note that the failed bid by United Parcel Service was due to antitrust concerns held by the European Commission. In other words, a similar bid from private equity, for example, would be unlikely to meet the same fate. 

The current share price of €5.30 compares to our original fair value estimate of between €8.00 and €9.50 per share. We believe that such fair values still hold, especially in light of the €9.50 offer price. With €7,246 million in sales during 2011 and a normalized operating margin of at least six percent, we think it is reasonable to expect normalized operating income of at least €430 million per annum. At the current enterprise value of approximately €2,800 million, this suggests that the shares currently trade at a normalized enterprise value-to-EBIT multiple of 6.5 times, a steep discount to the United Parcel Service and FedEx average of 12.5 times. Ergo, shares of TNT Express are once again recommended for purchase

On Thursday, November 29, 2012, Gold Fields Limited (Tickers: GFI SJ and GFI US) announced the proposed unbundling of the company’s 100 percent-owned subsidiary, Sibanye Gold Limited, which comprises the company’s KDC and Beatrix gold mines as well as various service entities located in South Africa. The listing of Sibanye Gold is expected to occur on February 11, 2013, with Gold Fields ordinary and ADR shareholders receiving one share of Sibanye Gold for every one share of Gold Fields. Notably, the unbundling does not require shareholder approval and the necessary approvals to list the company have already been granted by the South African Reserve Bank. Further details regarding the proposed unbundling are scheduled to be released in a pre-listing statement on January 10, 2013.

On May 17, 2012, the Board of Directors of Cookson Group PLC (Ticker: CKSN LN) announced that it was initiating a strategic review to consider a number of options for the company, including a potential demerger or separation of its main divisions. On Thursday, November 1, 2012-following an extensive review of restructuring options-Cookson Group announced that its Board of Directors has decided to demerge the company’s Performance Materials division from the Engineered Ceramics and the Precious Metals Processing divisions. Cookson Group’s Performance Materials division will accordingly be demerged to form a new London Stock Exchange-listed specialty chemicals company, called Alent plc. Cookson Group, consisting principally of the Engineered Ceramics division, will be renamed Vesuvius plc. A presentation for analysts and investors will take place on November 27, 2012. If the proposal is approved and the demerger becomes effective, shareholders will receive one Alent share and one Vesuvius share for every one Cookson Group share. The Court Meeting and General Meeting to approve the demerger are scheduled for November 26, 2012, with the demerger expected to become effective on December 19, 2012.

Autoneum Holding Ltd, a Switzerland-based auto parts manufacturer, was spun off from Rieter Holding AG on May 13, 2011. It was a classic example of an industrial conglomerate separating two distinctly different businesses by way of a spin-off. Since that time, the shares of Autoneum have fallen by 63%, and those of Rieter Holding by 47%. The balance of this report will focus on the potential opportunity that exists in the Autoneum shares.
Neither of these companies appeared overvalued at the time of the transaction, as readers should reference in the original report issued on May 12, 2011. Thus, it cannot really be asserted that the separation of the two companies isolated a degree of prior overvaluation that has manifest sharply lower share prices only one year later.

On April 18, 2012, Brazilian energy company MPX Energia S.A. (MPXE3 BZ) and German power generation company E.ON AG (EOAN GR) announced the creation of a 50/50 joint venture, which will create the largest private energy company in Brazil. In order to finalize the deal, the transactions below must first take place:

NovaGold Resources Inc. (NG CN, NG US), a Canadian precious metals exploration and development company, has decided to spin off its interest in the Ambler project located in Northwestern Alaska as NovaCopper Inc. The Ambler district of Alaska hosts volcanogenic massive sulfide deposits that contain copper, zinc, lead, gold and silver and is one of the richest and most-prospective copper districts in one of the safest geopolitical jurisdictions in the world.
The spin-off will be transacted by way of a statutory plan of arrangement under the Companies Act of Nova Scotia. Pursuant to the terms of the arrangement, 100 percent of the outstanding common shares of NovaCopper, will be distributed to holders of common shares of NovaGold such that each NovaGold shareholder of record on the effective date of the arrangement will receive one NovaCopper share for every six common shares of NovaGold. A special meeting of NovaGold shareholders will be held on March 28, 2012. The record date for determining those entitled to receive notice of and vote at the meeting is February 24, 2012. The effective date of the spin-off is expected to be on or about April 30, 2012.
The directors of the company believe that the creation of two separate public companies-one focused on gold and one focused on the copper-dominant Ambler district-will enhance their respective business operations and provide holders of NovaGold securities with additional investment choices and enhanced flexibility.