The Weekly Wrap-Up provides summaries of recent publications from the Spin-Off Report including links to the full-length research reports. If you haven’t engaged with the research over the past seven days, the Weekly Wrap-Up will quickly update you on our newest and highest conviction ideas.
UPCOMING SPIN-OFFS AND EXPECTED COMPLETION DATES:
- Western Digital (WDC) / HDD Business – Late February 2025
- Spectrum Brands (SPB) / Home & Personal Care Business – 1H 2025 (sale more likely than spin-off)
- Holcim Ltd. (HOLN SW) / North American Business – May/June 2025
- DuPont Inc. (DD) / Electronics Business – 4Q 2025
- Topgolf Callaway Brands Corp. (MODG) / Topgolf – 2H 2025
- Unilever PLC (UL) / Ice Cream Business – Mid 2025
- Fortive Corp. (FTV) / Precision Technologies Business – 4Q 2025
- Comcast Corp. (CMCSA) / Cable Television Networks – 4Q 2025
- SKF AB (SKFB SS) / Automotive Business – 1H 2026
- FedEx (FDX) / FedEx Freight – 1H 2026
- Aptiv PLC (APTV) / Electrical Distribution Systems – 1Q 2026
- Becton, Dickinson (BDX) / Biosciences & Diagnostics Solutions – 2026
- Honeywell International (HON) / Advanced Materials / Automation and Aerospace- 2H 2026
RECENT PUBLICATIONS:
Western Digital Corporation (WDC) – COMPREHENSIVE REPORT – February 7, 2025
On October 30, 2023, Western Digital Corp. (NASDAQ: WDC) announced a plan to separate its HDD (Hard Disk Drive) and Flash (NAND) businesses into two independent, standalone, publicly traded companies via a tax-free spin-off to shareholders. Initially, the goal was to complete the transaction in the second half of 2024, but the most recent commentary suggests a completion date in late-February 2025.
The company completed a “soft-spin” or internal separation of the two businesses last July and publicly filed its most recent Form 10 in January. Additionally, the company intends to hold a capital markets event for SpinCo, which will re-assume its original corporate moniker of SanDisk Corp. and ultimately trade under the NASDAQ ticker SNDK, on February 11, 2025.
The post-spin HDD business, which will retain the Western Digital corporate identity and continue to trade under WDC on NASDAQ, will conduct a similar investor event the following day on February 12, 2025. Shareholders will receive one-third of one share of SNDK for every WDC share owned as of the record date and WDC will retain a 19.9% stake in SpinCo (with definitive plans for disposal over the subsequent twelve-months following completion).
Management indicated that the separation would “better position each business to execute innovative technology and product development, capitalize on unique growth opportunities, extend respective leadership positions and operate more efficiently with distinct capital structures.” While both companies are broadly in the data storage industry, they operate in differing businesses, both in terms of end-markets, each having their own size, cyclicality and growth prospects/cadences (enterprise cloud vs. consumer-oriented PC, mobile and gaming), as well as capital intensity.
On a pre-spin basis, investors should consider the mixed/disparate near-term outlook for the HDD and Flash businesses (as well as recent management changes) against the backdrop of solid longer-term demand trends. The need for data storage capacity continues to accelerate, in part driven by the needs of hyperscalers and artificial intelligence (AI) computing models, along with what appears to be an un-demanding valuation that suggests the impending transaction is poised to unlock value.
As a standalone, WDC’s hard disk drive (HDD) business is the more stable of the two, in terms of near-term revenue, margins and cash flow trends. It also has a robust outlook, driven by increased data-center and cloud storage demand. Additionally, there is the relatively oligopolistic nature of the underlying competitive market, where WDC and Seagate Technology (NASDAQ: STX) essentially control ~80% of the share, while the Flash (or NAND, as it is commonly referred) business is grappling with pricing pressure driven by excess inventory and “choppy” demand (or what management terms as a “mid-cycle pause”) within its core personal computer (PC) and smartphone end-markets, as well as increased foreign competition (e.g., China-based Yangtze Memory Technologies).
The demand outlook driven by the ever increasing/secular need for storage capacity along with the sheer sizes of the total addressable markets support an attractive underlying industry backdrop for both businesses. In fact, despite the current weakness in the broader industry, the enterprise Flash market is perhaps better positioned than HDD looking into the next decade.
Shares currently trade at a valuation, which, at least to some degree, reflects the near-term uncertainty at Flash and suggests the impending transaction could unlock value, warranting a BUY recommendation. On a pre-spin basis, we fairly value shares of WDC at ~$75 per share, consisting of $16 per share for SanDisk and $59 for the remaining HDD business. On a post-spin basis, shares of SanDisk are valued at ~$37.50 per share (accounting for the one-for-three share distribution ratio and the 19.9% stake retained by its former parent), and post-spin WDC at $62 per share (including the estimated value of its retained ownership in SNDK).
Upon distribution, we see heightened potential risk for initial volatility at post-spin SanDisk. This is due to the seemingly dour near-term investor sentiment, which could be exacerbated by the uncertainty regarding index inclusion, as the parent is a member of the S&P 500 Index. That said, this dynamic could ultimately present a compelling entry point for long-term investors (particularly in front of the potential for a re-rating ahead of a cyclical recovery in 2H 2025, a more disciplined pricing environment and a seemingly solid longer-term secular demand backdrop, particularly in enterprise SSD).
Magnera Corporation (MAGN) – UPDATE – February 6, 2025
On February 6, Magnera Corp. (MAGN) reported 1Q F2025 results, it’s first as a standalone company after completing its spin-off from BERY and concurrent RMT merger with GLT in early-November 2024, with net sales up ~2% to $702 million, driven largely by price as volumes were flat (and unfavorable currency changes were a ~$14 million headwind) with adjusted EBITDA growth of ~8% to $84 million and a net loss of $22 million. (Per management, assuming the merger with GLT occurred at the beginning of the quarter adj. EBITDA would have been ~$92 million.)
The company ended 1Q F2025 with a leverage ratio of 4.0x, reflecting net debt of $1.78 billion comprised of $215 million in cash (with total liquidity of ~$500 million) and $1.996 billion of debt. The company still targets a leverage goal of 3.0x (although not likely achievable in F2025).
We still look forward to MAGN laying out a formal long-term financial framework and management did provide full-year F2025 guidance, calling for adj. EBITDA of $385-$405 million with adjusted free cash flow (FCF) of $75-$95 million, based on a capital spending budget of ~$85 million (including $10 million of IT-related conversion costs). Interest expense is projected to be ~$130 million while taxes and other one-time integration costs are expected to total ~$60 million.
Despite a modestly positive reaction for the stock, MAGN’s initial F2025 guide clearly underwhelmed as compared with our initial adj. EBITDA forecast of $490 million.
To that end, based on the current outlook our fair value estimate for MAGN is revised to $33 per share, 65% above the current price.
Honeywell International Inc. (HON) – UPDATE – February 6, 2025
On February 6 before the market open, Honeywell International Inc. (HON) announced plans for the tax-free separation of its Automation and Aerospace businesses, which comes in addition to the previously announced plan to spin-off its Advanced Materials business. In terms of timing, management targets a 2H 2026 completion for the transaction, subject to customary conditions, including the filing and effectiveness of a Form 10 registration, the receipt of various regulatory approvals and final consent of HON’s Board of Directors.
Currently, HON manages its business in four primary operating segments: 1) Aerospace; 2) Building Technologies; 3) Performance Materials & Technologies; and 4) Safety & Productivity Solutions. The Advanced Materials (AM) business, which presently resides as a unit within the Performance Materials & Technologies segment provides sustainability-focused specialty chemicals & materials under such brands as Solstice, Spectra, Hydranal and Aclar, is expected to generate sales of $3.7-$3.9 billion with an EBITDA margin profile greater than 25% in F2024. As a standalone, management envisions the Advanced Materials company, which has a large-scale domestic manufacturing base, will benefit from more flexible/optimized capital allocation and allow investors to focus their capital more acutely. Honeywell Automation, which will focus on powering the industrial digital transformation, generated ~$18 billion of sales in 2024 with a segment margin of ~23% while Honeywell Aerospace, which is generally viewed as the company’s “crown jewel”, will be one of the largest pure play aerospace suppliers at ~$15 billion in sales (and a segment margin of ~26%).
Within the context of HON’s corporate strategy of focusing on what management views as three “compelling megatrends” – automation, aviation and the global energy transition. That said, in late-2024, the company also came under pressure from activist-investor Elliott Investment Management who issued a public letter to HON’s Board indicating it had made “a more than $5 billion” investment in the company. Elliott asserted that the current conglomerate operating structure has led to “uneven execution”, “inconsistent financial results” and share price underperformance over the last 5-years. As a prescription to these perceived ills, Elliott called on HON to separate its Aerospace and Automation businesses into two separate, standalone companies (which is a move that it estimates could unlock 50%-75% of share price appreciation over the next two years).
As previously indicated management thinks that given the businesses’ outsized margin profile relative to peers, the standalone Advanced Materials (AM) business should trade at a premium to competitors, such as Chemours (NYSE: CC) and Arkema (AKE FP), which trade at ~6.5x 2025E EBITDA, while a wider group, including ABB Ltd. (ABB SS), Emerson Electric (NYSE: EMR), Rockwell Automation (NYSE: ROK) and Schneider Electric (SU FP), bring the overall group average up to ~13.5x 2025E EBITDA. Applying a 13x multiple to estimated Performance Materials & Technologies segment 2025E EBITDA implies value of ~$37.5 billion.
The Aerospace segment could be compared with peers, such as Garmin Ltd. (NYSE: GRMN), L3Harris Technologies (NYSE: LHX), Northrop Grumman (NYSE: NOC), RTX Corp. (NYSE: RTX), Safran SA (SAF FP), and Thales SA (HO FP), which trade at ~15.5x while a broader range of industry comparables (as espoused by Elliott) including GE Aerospace (NYSE: GE), HEICO (NYSE: HEI), Howmet Aerospace (NYSE: HMT), Rolls Royce (RR/LN), RTX Corp. (NYSE: RTX), Safran (SAF FP) and TransDigm (NYSE: TDG) trade at ~21.5x 2025E EV/EBITDA. Applying a blended 19.0x multiple to estimated 2025E Aerospace segment EBITDA implies a segment value of $101 billion.
Next, the Buildings Technologies segment could be compared with Carrier Global (NYSE: CARR), Johnson Controls (NYSE: JCI), Schneider Electric (SU FP) and Siemens AG (SIE GY), which trade at ~15.5x 2025E EV/EBITDA. Applying the peer multiple to estimated 2025 segment EBITDA implies a value of ~$27 billion.
Lastly, applying a 13x peer multiple, in-line with peers, such as 3M (NYSE: MMM), Kion Group (KGX GR), MSA Safety (NYSE: MSA), TE Connectivity (NYSE: TEL), Carrier Global (NYSE: CARR) and Zebra Technologies (NASDAQ: ZBRA), to estimated 2025E segment EBITDA at Safety & Productivity Solutions, implies a segment value of ~$13.5 billion. Accounting for corporate costs as well as projected net debt yields an initial sum-of-the-parts fair value estimate of ~$158 billion or ~$241 per share, 17% above the current price.
Becton, Dickinson & Co. (BDX) – ALERT – February 6, 2025
On February 5, Becton, Dickinson and Company (NYSE: BDX), a global medical technology company, announced the separation of its Biosciences & Diagnostic Solutions (B&DS) business via, among other options, a spin-off, sale or Reverse Morris Trust (RMT) transaction. The company expects to provide more specificity by the end of F2025 (September-ending) and aims to ultimately complete any transaction in F2026.
As a standalone, SpinCo (i.e., B&DS) will be a pure-play life science tools and diagnostics player operating within an addressable market of ~$22 billion that is growing at “mid-to-high single-digit” rate. Specifically, the B&DS business generated ~$3.4 billion in sales during 2024, of which ~80% were recurring, and adjusted EBITDA margins ~30%. RemainCo (or New BD) will have an increased focus on its core healthcare provider & patient (i.e., MedTech) end markets and was indicated to have generated 2024 sales of ~$17.8 billion, of which over 90% were recurring, amid an ~$70 billion addressable market that is estimated to be growing at ~5%. Post-separation, New BD will operate four business units: 1) Medical Essentials (~$6.2 billion in 2024 sales); 2) Connected Care ($4.3 billion); 3) BioPharma Systems (~$2.3 billion); and 4) Interventional (~$5 billion in 2024 sales).
It was reported earlier this month in the financial press that activist-investor Starboard Value had established a stake in BDX, which completed the spin-off of diabetes device maker Embecta Corp. (NASDAQ: EMBC) in April 2022, and was privately urging a sale of the company’s life sciences business (at a reportedly ~$30 billion valuation). Management believes a transaction will “optimize the market valuation” of each of the standalone/pure-play MedTech and Life Science Tools businesses.
In terms of valuation, SpinCo could be compared with Life Sciences & Diagnostics peers, such as Agilent Technologies (NYSE: A), Avantor Inc. (NYSE: AVTR), Bruker Corp. (NASDAQ: BRKR), Illumina Inc. (NASDAQ: ILMN), Metter-Toledo International (NYSE: MTD), Revvity Inc. (NYSE: RVTY), Qiagen (NYSE: QGEN), Thermo-Fischer Scientific (NYSE: TMO) and Waters Corp. (NYSE: WAT), which, on average, trade at ~18x 2026E EV/EBITDA (in a range of 11.5x-22x) while RemainCo (New BD) could be compared with a broad range of medical device/equipment concerns, such as Abbott Laboratories (NYSE: ABT), Styker Corp. (NYSE: SYK), Edward Lifesciences Corp. (NYSE: EW), which sold its critical care business to BDX in September 2024 for around 14x forward, Medtronic (NYSE: MDT), Steris (NYSE: STE) and Enovis (NYSE: ENOV), which trade, on average, at ~13x 2026E EV/EBITDA (in a range of 11.5x-22x). Applying an 18x multiple to estimated 2026E EBITDA at SpinCo implies segment value of ~$20.5 billion while applying a 14x multiple to 2026E EBITDA at RemainCo implies segment value of ~$72 billion. Accounting for net debt of ~$18.0 billion yields a preliminary pre-spin valuation of ~$74.5 billion or ~$256.50 per share (based on a diluted share count of ~290.4 million).
Monthly publication providing ongoing analysis on companies where we see potential for a value-unlocking event
Companies discussed this month: Albany International (AIN), Alphabet Inc. (GOOG), APi Group (APG), California Resources Corp. (CRC), Crown Castle Inc. (CCI), Goodyear Tire & Rubber, Inc. (GT), IAC Inc. (IAC), Intel Corporation (INTC), Luxfer Holdings (LXFR), Masimo Corp. (MASI), Matthews International Corp. (MATW), Netgear Inc. (NTGR), RCI Hospitality Inc. (RICK), Stanley Black & Decker (SWK), TFI International Inc. (TFII), TriMas Corporation (TRS), XPO Inc. (XPO)
Published monthly, The Spin-Off Calendar provides one-page summaries of every spin-off under coverage from the announcement date, followed by the filing of the Form 10 and continuing 60 days post completion.
Murray Stahl’s commentary on various investing themes and single stock recommendations.
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