MATW confirms early reports that it had “narrowly” defeated Barington’s three Board nominees following some last-minute corporate governance concessions; that said, we note the activist’s campaign yielded tangible changes/benefits for shareholders (and a strategic review remains on-going)

This morning, MATW confirmed an early report from Reuters indicating that MATW’s incumbent slate of directors “narrowly” defeated the dissident slate of three independent directors nominated by Barington Capital (a ~2% owner). 

Anecdotally, it seems the result may ultimately been swayed by the corporate governance concessions recently offered by management, including the commitment to appoint a new independent board chair by next year’s annual meeting, add a new independent director with experience in battery & EV technology solutions (namely Mr. Thomas Gebhardt who replaced Mr. Gregory Babe earlier this week) and propose a de-classification of the Board (with all directors expected to stand for election on an annual basis).

While this is ostensibly a disappointing outcome for Barington it is, in our view, hard to view the activist’s campaign as a failure from a wider shareholder perspective considering the tangible changes/benefits achieved over the last 6-months, including the monetization of the SGK Brand Solutions business for ~$400 million in cash (and other considerations), from which the proceeds could, by our calculation, reduce MATW’s leverage ratio to ~2.6x (from ~3.9x at the end of 1Q F2025), as well as the enactment of an on-going strategic review (spearheaded by J.P. Morgan) aimed at evaluating all options to unlock value for shareholders.

In terms of guidance, on the 1Q F2025 earnings call, management re-iterated its initial full-year F2025 adjusted EBITDA guidance, which still includes SGK and takes a “cautious” stance, of $205-$215 million.  Broadly, this outlook anecdotally reflects the expectation for continued stability at Memorialization, growth at SGK and on-going uncertainty within the Industrial Technologies segment (which could be alleviated by the recent arbitration ruling solidifying the company’s right to universally commercialize its Dry Battery Electrode battery technology).  

Our base case fair value estimate for MATW remains $40 per share, reflecting a blended multiple of ~9.5x multiple on our F2026E adjusted EBITDA of $~$167.5 million and net debt of ~$319.5 million.

Today, MATW announced that it had entered into a letter of intent (LOI) for the disposal of the remaining assets within its SGK Brand Solutions, namely the European roto-gravure packaging & surfaces businesses, for consideration of ~$50 million, which will be predominantly paid in cash that will be directly to debt reduction.

Recall, in January 2025, MATW announced a definitive agreement to sell its stake in SGK Brand Solutions to SGS & Co., a privately held global brand agency.  Per the agreement, which is expected to close in mid-2025, MATW will receive $350 million of upfront consideration, comprised of $250 million in cash, the retention of ~$50 million in securitized trade receivables and $50 million of preferred equity in the new entity.

By our calculation, assuming $250-$300 million of incremental debt reduction MATW’s leverage ratio would, all else being equal, improve to 2.5x-2.6x (as compared with 3.9x at the end of 1Q F2025).

Despite these recent actions, the company’s wider strategic review remains on-going as does the proxy contest currently being waged by ~2% owner Barington Capital, which has nominated three independent directors for election at the 2025 Annual Meeting (scheduled for February 20^th).

In terms of the ultimate outcome of the shareholder vote, we would simply note that on one hand Barington’s nominees have been recommended by the proxy advisory firms Glass Lewis, ISS and Egan Jones while on the other long-time shareholder GAMCO, a ~4.5% holder, has publicly signaled its intent to support MATW’s current slate of directors (albeit with a keen eye on further corporate governance improvements).

In terms of guidance, on the 1Q F2025 earnings call, management re-iterated its initial full-year F2025 adjusted EBITDA guidance, which still includes SGK and takes a “cautious” stance, of $205-$215 million.  Broadly, this outlook anecdotally reflects the expectation for continued stability at Memorialization, growth at SGK and on-going uncertainty within the Industrial Technologies segment (which could be alleviated by the recent arbitration ruling solidifying the company’s right to universally commercialize its Dry Battery Electrode battery technology).  

Our base case fair value estimate for MATW is revised to $40 per share, reflecting a blended multiple of ~9.5x multiple on our F2026E adjusted EBITDA of $~$167.5 million and net debt of ~$319.5 million.

PCS Research Group welcomes and encourages your feedback.  Please feel free to call us if we can be of service.

Dropping Coverage of MDU Resources (MDU) and Everus Construction (ECG), effective as of today’s close

On October 31, 2024, after the market close, MDU Resources Group Inc. (NYSE: MDU), completed the 100% spin-off of Everus Construction Group (NYSE: ECG) into a separate, publicly traded company via a tax-free spin-off.

Given the transaction has passed our 90-day post-spin coverage mandate, we DROP coverage of MDU Resources Group (MDU) and Everus Construction Group (ECG), effective as of today’s market close.

For context, recall that on the heels of the stock’s strong run following our initial pre-spin BUY recommendation (i.e., the shares rose more than ~20% versus ~9% and ~13% gains in the S&P and Russell) we ultimately initiated both post-spin entities with NEUTRAL ratings (along with fair value estimates of ~$18 and ~$51 per share, respectively). As public entities, MDU’s stock has appreciated ~6.5% (underperforming the S&P by ~0.5% but outperforming the Russell by ~2.5%) while shares of ECG have declined ~3.5% (underperforming the S&P and Russell by ~11% & ~8%, respectively).

Going forward, our prior estimates & fair values for MDU and ECG will not be updated and should no longer be relied upon.

For more details/perspective, please refer to The Spin-Off Report dated June 10, 2024 and the Update from 10/17/2024.

MATW to sell the remainder of its SGK Brand Solutions segment for an additional $50 million, which will be earmarked for further debt reduction  

Today, MATW announced that it had entered into a letter of intent (LOI) for the disposal of the remaining assets within its SGK Brand Solutions, namely the European roto-gravure packaging & surfaces businesses, for consideration of ~$50 million, which will be predominantly paid in cash that will be directly to debt reduction.

Recall, in January 2025, MATW announced a definitive agreement to sell its stake in SGK Brand Solutions to SGS & Co., a privately held global brand agency.  Per the agreement, which is expected to close in mid-2025, MATW will receive $350 million of upfront consideration, comprised of $250 million in cash, the retention of ~$50 million in securitized trade receivables and $50 million of preferred equity in the new entity.

By our calculation, assuming $250-$300 million of incremental debt reduction MATW’s leverage ratio would, all else being equal, improve to 2.5x-2.6x (as compared with 3.9x at the end of 1Q F2025).

Despite these recent actions, the company’s wider strategic review remains on-going as does the proxy contest currently being waged by ~2% owner Barington Capital, which has nominated three independent directors for election at the 2025 Annual Meeting (scheduled for February 20^th).

In terms of the ultimate outcome of the shareholder vote, we would simply note that on one hand Barington’s nominees have been recommended by the proxy advisory firms Glass Lewis, ISS and Egan Jones while on the other long-time shareholder GAMCO, a ~4.5% holder, has publicly signaled its intent to support MATW’s current slate of directors (albeit with a keen eye on further corporate governance improvements).

In terms of guidance, on the 1Q F2025 earnings call, management re-iterated its initial full-year F2025 adjusted EBITDA guidance, which still includes SGK and takes a “cautious” stance, of $205-$215 million.  Broadly, this outlook anecdotally reflects the expectation for continued stability at Memorialization, growth at SGK and on-going uncertainty within the Industrial Technologies segment (which could be alleviated by the recent arbitration ruling solidifying the company’s right to universally commercialize its Dry Battery Electrode battery technology).  

Our base case fair value estimate for MATW is revised to $40 per share, reflecting a blended multiple of ~9.5x multiple on our F2026E adjusted EBITDA of $~$167.5 million and net debt of ~$319.5 million.

PCS Research Group welcomes and encourages your feedback.  Please feel free to call us if we can be of service.

Updates from WDC’s Investor Days; Regular-Way Trading Begins Monday, February 24^th

This week, Western Digital Corp. (NASDAQ: WDC) held back-to-back investor days ahead of the impending separation of its Flash & HDD businesses into two standalone companies, Sandisk Corp. and Western Digital Corporation. Upon completion of the tax-free distribution, which is expected to occur at 11:59 p.m. on Friday, February 21^st, the two post-spin entities will begin to trade under the tickers NASDAQ: SNDK and NASDAQ: WDC, respectively (with so-called “regular way” trading expected to commence Monday, February 24^th).  Shareholders of record will receive one-third of one share of SNDK for every WDC share owned and WDC will retain a 19.9% stake in SpinCo (with definitive plans for disposal over the subsequent twelve-months following completion).

Day 1 focused on Sandisk (currently the Flash segment), which will be led by WDC’s current chief executive, Mr. David Goeleker. To be sure, there was a host of interesting technical/product information but, for the sake of brevity, we will focus on some of the financial benchmarks that may be most pertinent to investors.  In the near term, the company indicated that 3Q F2025 will remain a “tough…transition” period, forecasting standalone 3Q F2025 SNDK sales of $1.55-$1.65 billion (see Exhibit 1) with adj. gross margin of 21.5%-23.0%, operating expenses of ~$395-$405 million (or ~25% of sales at the mid-point, by our calculation), interest & other expense of ~$25-$30 million, a non-GAAP tax rate of 21%-23% and adj. EPS of $(0.30)-$(0.45). That said, the company re-iterated confidence that the current industry-wide supply/demand imbalance would reverse in the back-half of calendar 2025 as excess industry inventory is depleted and a potential refresh cycle in the personal computer (PC) space driven by the Windows 11 roll-out and the addition of AI capabilities begins to ramp.  As well, management stressed that the company (along with wider industry, which is still seemingly/rightfully still scarred by the ~$40 billion of aggregate lost cash flow during the last downturn) will exhibit improved capital/capacity discipline in the future.  To that end, management is keenly focused on reducing the volatility in its gross margin through the course of the cycle (i.e., higher-highs & lower-lows).  Specifically, the company provided a “through-cycle” financial framework suggesting that standalone SNDK will post bit growth in-line with the market, which is projected to advance at a clip in the “mid-to-high teens” (albeit against a backdrop where the cost per bit declines in the “low-teens”) with adjusted gross and operating margins of ~35% and 20%, respectively.  Gross capital spending and free cash flow (FCF) are projected to be at the “mid-teens” and “low-teens” as a percentage of total sales (see Exhibit 1).  Lastly, without providing any formal timeline for its achievement, management laid out a long-term outlook for its earnings & cash flow generation (see Exhibit 1), which targets ~$10 billion in sales and an adj. operating margin of ~20% along with free cash flow (FCF) generation of more than ~$1.2 billion (at which time the company would expect to be net cash positive with gross debt of less than $1 billion; see Exhibit 1).   As it relates to the manufacturing joint venture (JV) with Kioxia, which has persisted since May 2000 (and has recently been extended into 2034), the company provided some incremental financial data (see Exhibit 2); to that end, management indicated that going forward Sandisk will begin to report adj. EBITDA on both its previous reporting paradigm as well as on a basis that excludes the depreciation & amortization (D&A) expense related to the joint venture (which, we note, would have added nearly $120 million or ~30% to the reported number in 1Q F2025).  Anecdotally, the company suggested the replacement value of the assets that it has contributed to the joint venture is likely in the $15-$20 billion (that said, it seems clear the “market” has not been and is seemingly not overly keen on assigning that level value at this stage). 

Day 2 focused on post-spin Western Digital (currently the HDD segment), which will be led by Mr. Irving Tan, currently the executive vice president (EVP) of global operations at WDC.  Again, without getting into the minutia of the technological/product details provided, the company broadly asserted its belief in the attractive secular backdrop for HDD demand, driven by the growing storage needs of the cloud (i.e., hyperscalers) as well as artificial intelligence (AI), along with the predictability and scalability of its operations, in terms of earnings and cash flows.  To that end, the company projected that the total addressable market of its nearline HDD market, which is ~80% levered to the “cloud”, will grow from ~$13 billion in 2024 to more than $22.5 billion in 2028 (with AI-related demand contributing ~$5.5 billion of the delta).  Within that underlying demand backdrop (as well as the oligopolistic nature of the HDD space), the company expects to post top-line growth at least in-line with the industry, which is conservatively projected to grow in the mid-to-high single digits, with adj. gross and operating margins that are equal to or greater than ~38% and ~24%, respectively (see Exhibit 3).  Capital spending is expected to average between 4%-6% of total sales and once the company achieves its targeted leverage ratio range of 1.0x-1.5x, which will be hastened as by the optionality provided by its commitment to monetize its 19.9% stake in SNDK over the next twelve months, management commits to returning 100% of excess cash flow back to shareholders (in the form of dividends and share repurchases).  To that end, the company expects to institute a dividend in the June-ending 4Q F2025.

All told, our initial investment thesis remains substantively intact with our fair value estimate moving to $76 per share (from $75 per share): On a pre-spin basis, we continue to think investors will evaluate the disparate near-term outlooks for the HDD and Flash businesses (as well as recent management changes) against the backdrop of solid longer-term demand trends. As well, amid the accelerating need for data storage capacity, in part driven by the needs of hyperscalers and artificial intelligence (AI) computing models, the stock’s relatively un-demanding valuation suggests the impending transaction is poised to unlock value. On the first point, as a standalone, WDC’s hard disk drive (HDD) business will clearly be 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).  [Again, for its part, management expects the supply/demand dynamic within its Flash business will begin to improve during the back-half of calendar 2025, as excess industry inventory is drained and a potential refresh cycle in the personal computer (PC) space driven by the Windows 11 roll-out and the addition of AI capabilities ramps as well as improved capital/capacity discipline within the industry writ large (as postulated in company’s recent webcast on the subject dubbed “The New Era of NAND”).] Also, in the longer-term, it seems apparent that the demand outlook driven by the ever increasing/secular need for storage capacity given the data needs that are emerging on many fronts, including artificial intelligence models, 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 ironically perhaps better positioned than HDD looking into the next decade.) Lastly, it appears that, at current levels, the shares 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 the maintenance of our initial pre-spin BUY recommendation (despite the modest recent share price appreciation).  All told, on a pre-spin basis, we fairly value shares of WDC at ~$76.00 per share (previously $75 per share), consisting of ~$17 per share for SanDisk and $59 for the remaining HDD business.  On a post-spin basis, shares of SanDisk are valued at ~$41.50 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; see Exhibit 4 on page 5).  Upon distribution, which, again, is expected to occur after the market close on February 21^st, we continue to see heightened potential risk for initial volatility at post-spin SanDisk (SNDK) due to the seemingly dour near-term investor sentiment on the Flash space, 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). 

Please see the Spin-Off Report dated February 5, 2025, for more information.

TRS retains advisors to conduct a wider review of its portfolio amid the on-going leadership transition; fair value remains $32 per share   

Today, TRS announced it had retained PJT Partners (NYSE: PJT) and Bank of America (NYSE: BAC) as financial advisors to explore a range of potential options for its remaining businesses (following the completed sale of its Arrow Engine division as well as the decision of long-time CEO, Mr. Thomas Amato, to step aside in early-January 2025.) 

For context, TRS has faced criticism from shareholders, including 1.5% holder Barington Capital (as well as, to a lesser degree, ~10.3% holder Trend International) who has called for both a leadership transition as well as the monetization of individual assets or the entire firm. 

To that end, in the wake of Mr. Amato’s decision to step down from both his management and Board positions Barington renewed its campaign to unlock value by publicly contending that in lieu of conducting a comprehensive search for a new leader the Board should take the opportunity to retain bankers and purse strategic alternatives (again, to evaluate the sale of business units or the company en masse). 

The company expects to report 4Q 2024 results before the market open on February 22^nd with a conference call later that morning at 10 a.m. (ET); call-in at (877) 407-0890.

In terms of guidance, on the 3Q 2024 conference call TRS reiterated its most recent full-year 2024 guidance calling for consolidated adj. EPS of $1.70-$1.90 on consolidated sales growth of ~4%-6% (see Exhibit 1 on page 2).

By segment, management forecasts top-line growth of 9%-10% and 18%-22% at Packaging & Aerospace, respectively, with adj. EBITDA margins of 21%-23% and 18%-19%.  Specialty Product segment sales are expected to be down 25%-30% with a segment adj. EBITDA margin profile of 10%-14% (see Exhibit 2 on page 2). 

Our base case fair value estimate for TRS remains $32 per share, reflecting a blended multiple of ~9.0x on 2025E adj. EBITDA of ~$173 million, projected net debt of ~$319 million and a fully diluted share count of ~40.1 million (see Exhibit #3 on page 3).

PCS Research Group welcomes and encourages your feedback.  Please feel free to call us if we can be of service.

MAGN Reports 1Q F2025 Results And Provides Initial F2025 Guidance

This morning, Magnera Corp. (NYSE: MAGN) reported 1Q F2025 results, it’s first as a standalone public company after completing its spin-off from BERY & 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.)

As expected, 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 based on our assumptions that goal is not likely achievable in F2025).

In terms of guidance, while we (along with the broader investment community) still look forward to MAGN laying out a formal long-term financial framework, 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 what appears to be a modestly positive reaction for the stock in today’s trading session, 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 post-spin fair value estimate for MAGN is revised to $33 per share (Exhibit 1).

Also, please see the comprehensive Spin-Off Report dated October 22, 2024, and Updates from 10/23/2024 and 11/5/2024 for more information

Honeywell International Plans a Tax-Free Separation into Three Standalone Pure-Play Companies  

On February 6, 2025, before the market open, Honeywell International Inc. (NYSE: HON) announced plans for the tax-free separation of its Automation and Aerospace businesses, which comes in addition to the previously announced plan (on October 8, 2024) to spin-off its Advanced Materials business. In terms of timing, management targets a 2H 2026 completion for the transaction, subject customary conditions, including the filing & effectiveness of a Form 10 registration statement with the Securities & Exchange Commission (SEC), the receipt of various regulatory approvals and final consent of HON’s Board of Directors (while initial commentary on the Advanced Materials spin-off was by “the end of 2025 or early 2026”).

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%). 

In terms of background/context, this morning’s announcement (along with the previous Advanced Materials disclosure) comes within the context of HON’s overarching corporate strategy of focusing on what management views as three “compelling megatrends”, specifically automation, aviation and the global energy transition under the leadership of current chief executive, Vimal Kupur (who took the helm in June 2023 and has previously suggested that “portfolio management would be a hallmark of his tenure).  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 (which, by our calculation, would put among the top 10 shareholders).  While praising the company as being an “iconic pillar of the American industrial complex” and a “world-class company with market-leading assets” the investor 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).  Additionally, we would note that HON spun-off of its home business, Residio (NYSE: REZI), and its transportation systems (i.e., turbochargers) business, Garrett Motion (NASDAQ: GTX) in 2018.  Anecdotally, it seems, at least initially, that the investment community viewed the two spin-off entities as having been set free with disadvantaged financial profiles, either from an income statement (i.e., royalty) or balance sheet (i.e., un-related liability) perspective. Consequently, management on this morning’s conference call management indicated its intention to establish the Aerospace and Automation businesses with an investment grade credit rating (while, as previously suggested the Advanced Materials business is expected to have a “strong” non-investment grade credit rating, likely BB+ or the equivalent from our understanding). 

In terms of financial guidance, in conjunction with 4Q 2024 results, HON issued its full-year 2025 outlook calling for consolidated sales of $39.6-$40.6 billion, implying organic growth of 2%-5%, with segment margin of 23.2%-23.6% (or up 60-100 basis points year-over-year) and adjusted EPS of $10.15-$10.50, implying growth of 2%-6%.  Free cash flow is expected to be $5.4-$5.8 billion, implying 10%-18% growth.  For 1Q 2025 specifically, management projected segment sales of $9.5-$9.7 billion, implying organic growth that is flat to up 2%, with a segment margin of 22.5%-22.9% (down 10-50 bps) and adj. EPS of $2.15-$2.25 (down 4%-8%).

In terms of valuation, as previously indicated management anecdotally 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 (based on a diluted share count of ~655 million).

Also, please see The Spin-Off Report Alert dated October 8, 2024 for more information.

BDX Intends to Separate its Biosciences & Diagnostic Solutions Business in F2026

On February 5, 2025, after the market close, Becton, Dickinson and Company (NYSE: BDX), a global medical technology company, announced that its Board had authorized management to pursue 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 on which avenue it concludes will maximize shareholder value by the end of F2025 (September-ending) and aims to ultimately complete any transaction in F2026. [Note: considering this announcement the company postponed the Investor Day it had scheduled for later this month.] 

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).

In conjunction with this announcement as well as results for its December-ending fiscal first quarter, BDX updated its full-year September-ending F2025 guidance, which now calls for GAAP sales of $21.9-$22.1 billion (up from $21.7-$21.9 billion), implying overall growth of 8.9%-9.4% (previously 7.9%-8.4%) as well as organic growth of 4.0%-4.5% (unchanged), along with adjusted diluted EPS of $14.25-$14.60 (previously $14.30-$14.60), which implies year-over-year growth of ~8.5%-11.0%. 

For context, it was reported earlier this month in the financial press that activist-investor Starboard Value had established a stake in BDX, which, we note 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).  Beyond the traditional rationale, including increased management & investor focus along with tailored capital allocation strategies, management think 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).

MATW receives a favorable arbitration ruling in its on-going dispute with Tesla, allowing the company to continue the commercialization of its proprietary Dry Battery Electrode (DBE) technology 

This morning, prior to the market open, MATW disclosed that it had received a positive ruling from the arbitrator meditating its on-going dispute with Tesla (NASDAQ: TSLA), which affirmed the company’s right to sell its proprietary Dry Battery Electrode (DBE) technology & solutions to customers other than Tesla.

To that end, the company intends to immediately resume its marketing, selling and delivery activities to provide a wide universe of customers with its innovative DBE products/solutions across the electric vehicle and automotive equipment manufacturer arenas.

Recall, in June 2024, Tesla, an early-adopter of MATW’s DBE technology filed a suit against the company alleging that during their collaboration MATW benefited from the receipt of “trade secrets” and sought to restrict the company’s ability to provide its products/solutions for third-parties customers (outside of Tesla). 

Subsequently, in November 2024, MATW was awarded a patent (U.S. No. 12,136,727 B2) titled “Systems for Manufacturing a Dry Electrode”, which management expects will be “foundational” in its effort to drive further innovation (as well as monetization) in the DBE space. 

On a separate note, MATW, which agreed to sell its SGK Brand Solutions in January 2025 for upfront consideration of ~$350 million (i.e., $250 million in cash, $50 million, the retention of ~$50 million in securitized trade receivables and $50 million of preferred equity in the new entity) as part of an on-going strategic review (launched in November 2024), remains under pressure from Barington Capital, currently a ~2% owner (up from its initial stake of 0.6%), who has nominated three new independent directors for election at the 2025 Annual Meeting (scheduled for February 20^th).  Within that context, we note that GAMCO, a ~4.5% holder, recently indicated that it intends to support the company’s current slate of directors (albeit with a keen eye on further corporate governance improvements).

Our base case fair value estimate for MATW is revised to $40 per share, reflecting a blended multiple of ~9.5x multiple on our F2026E adjusted EBITDA of $~$167.5 million and net debt of ~$319.5 million.

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Aptiv to Spin-Off its Electrical Distribution Systems Business via a Tax-Free Distribution

On January 22, 2025, prior to the market open, Aptiv PLC (NYSE: APTV), a Dublin-based auto supplier with a history of acquisitions & divestitures, announced plans to spin-off its Electrical Distribution Systems (EDS) business via a tax-free spin-off, under which shareholders will retain their current APTV shares and receive a pro-rata distribution of the new EDS stock.  The transaction, which is expected to be completed by the end of March 2026 (subject to customary conditions, including final Board approval), is intended to be tax-free to both U.S. and Swiss shareholders.

Post-spin EDS, which will offer a full range of low- & high- voltage signal, power, and data distribution solutions to the automotive & commercial vehicle markets, is indicated to have generated 2024 sales of $8.3 billion, of which ~91% were auto-related, with a 9.5% margin, implying adj. EBITDA of ~$800 million.  In the medium-term (i.e., through 2028), management targets compound annual top-line growth in the mid-single digits at pro forma EDS with a “mid-to-high single digit” GAAP operating income margin and “high-single to low-double digit” adj. EBITDA margin.  While specific capital structures have not been formally disclosed the post-spin EDS business, given its relatively lower margin profile, is anecdotally expected to have a high albeit non-investment grade credit rating (while RemainCo is expected to maintain its current investment grade credit status).

Post-spin Aptiv, which will be comprised of the Advanced Safety & User Experience and the Engineered Components Group (ECG), is expected to be the higher-growth/higher margin entity focused on offering a full “sensor-to-cloud technology stack” to the automotive industry (i.e., 78% of segment sales) as well as the aerospace & defense, medical and industrial markets.  To that end, the remaining parent company is indicated to have generated ~$21.1 billion in sales with an adjusted EBITDA margin of 18.8% in 2024, implying adj. EBITDA of ~$2.3 billion.  In the medium term (i.e., through 2028) management targets “mid-to-high single digit” compound annual top-line growth for post-spin Aptiv with operating income and adj. EBITDA margins in the “low-to-mid teens” and “high-teens to low-twenties”, respectively.

Concurrent with this morning’s announcement, APTV reaffirmed its previously disclosed full-year 2024 outlook, which calls for net sales of $19.6-$19.9 billion, GAAP operating & net income of $1.765-$1.865 billion and $1.74-$1.84 billion, respectively, implying EPS of $6.00-$6.30 (based on an effective tax rate of ~10.6%).  On an adjusted basis, the company expects operating income of $2.3-$2.4 billion with EBITDA and EPS of $3.025-$3.125 billion and $6.80-$7.10 (based on a tax rate of ~16.5%).  Cash flow from operations are projected to be ~$2.15 billion and the capital spending budget is $875 million.

Beyond the traditional rationale, including increased management & investor focus along with tailored capital allocation strategies, the transaction is ostensibly aimed at unlocking shareholder value by allowing the post-spin Aptiv, given its higher-growth/higher margin profile and wider end-market opportunity, to trade at a premium to the broader peer group of auto suppliers, including Lear Corp. (NYSE: LEA), Continental (CON GY), Denso (6902 JT), Visteon (NYSE: VC), and Magna (MG CN) as well as Adient (NYSE: ADNT), American Axle (NYSE: AXL), BorgWarner (NYSE: BWA), and Dana (NYSE: DAN), which trade at ~4.5x 2026E EV/EBITDA (in a range of 2.5x-6.0x).  Applying a 4.5x multiple to estimated post-spin EDS EBITDA of $840.5 million implies segment value of ~$3.8 billion while applying a premium 8.0x multiple to RemainCo, which is closer to but still a discount to more industrially focused concerns, implies a segment value of $21.25 billion. 

Accounting for net debt of ~$7.7 billion yields a preliminary, base case, sum of the parts valuation of $17.35 billion or ~$70.50 per share (based on a diluted share count of ~246 million).