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%.

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.