The Radar Screen highlights 15 to 20 companies each month that are potential candidates for a breakup, restructuring or takeout. This report provides a summary of each situation, and covers a wide range of potential restructuring stories with varying degrees of upside potential.

This month’s Radar Screen includes the following companies:

• Albany International (AIN)
• Alphabet Inc. (GOOG)
• Bloomin’ Brands (BLMN)
• California Resources Corp. (CRC)
• Crown Castle Inc. (CCI)
• FedEx Corporation (FDX)
• Goodyear Tire & Rubber Co. (GT)
• Honeywell International Inc. (HON)
• IAC Inc. (IAC)
• Intel Corporation (INTC)
• Luxfer Holdings (LXFR)
• Masimo Corporation (MASI)
• Matthews International Corp. (MATW)
• RCI Hospitality Holdings Inc. (RICK)
• Stanley Black & Decker (SWK) 
• TFI International Inc. (TFII)
• TriMas Corporation (TRS)

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

Unilever Shifts Focus of Ice Cream Separation to a Demerger/Spin-Off (From a Sale)

In conjunction with a capital markets event, held on November 22, 2024, Unilever (ULVR LN, UNA UA), indicated that its focus for the separation of its Ice Cream business has shifted toward a demerger/spin-off.  The shift in strategy seemingly comes following a tepid response to its efforts to sell the “underperforming” asset, which was announced in March 2024. The company is still targeting completing a separation transaction by the end of 2025 (with more detailed strategic/financial disclosures slated for 1Q 2025 and an internal separation potentially occurring in mid-2025).

Currently, Unilever reports five segments: 1) Beauty & Wellbeing (21% of consolidated 2023 sales and 22.5% of adj. EBITDA), which focuses on hair & skin care products with brands, such as Dove, Vaseline, Pond’s TresSemme, Sunsilk, and Dermalogica and Nutrafol; 2) Personal Care (~23% of consolidated sales and 27% of adj. EBITDA), which supplies skin cleansers, deodorants and oral care products with a portfolio of brands, including Dove, Axe, Pepsodent, Rexona, Lux, and Lifebuoy; 3) Home Care (~20.5% of consolidated sales and 15.5% of adj. EBITDA), which provides fabric cleaners & enhancers along with home hygiene products under an umbrella of brands, such as Comfort, Radiant, Surf, Cif, Omo, Sunlight and Domestos; 4) Nutrition (~22% of consolidated sales and 24% of adj. EBITDA), which supplies food, condiments, cooking aids and mini-meals via brands, such as Hellmann’s Knorr and Horlicks; and 5) Ice Cream (13.5% of consolidated 2023 sales and 11% of adj. EBITDA), which operates the Ben & Jerry’s, Wall’s, Cornetto and Magnum brands.

In terms of financial guidance, for full year 2024, management expects underlying consolidated sales growth of 3%-5% (within its targeted multi-year range), which is expected to be largely driven by volume, with an underlying operating margin of at least 18%.  Within the company’s Growth Action Plan 2030 (dubbed GAP 2030), which includes the separation of the Ice Cream division as well as ~€800 million of cost savings/operational efficiencies, management targets 2%-plus compound annual volume growth along with gross margin expansion while also targeting a total shareholder return (TSR) in the top 1/3^rd of its peer group.

In terms of valuation, the Ice Cream division’s closest peer is likely Nestle SA (NESN SW), which trades at ~14x 2025E EV/EBITDA (and to a lesser degree GIS, which trades at ~12x).  Applying a 12x multiple to 2025E EBITDA implies a segment valuation of ~€16.2 billion.  The Beauty & Wellbeing, Personal Care and Home Care segments could be compared with a broad range of peers, including Beiersdorf AG (BEI GY), Colgate-Palmolive (NYSE: CL), Church & Dwight (NYSE: CHD), Estee Lauder (NYSE: EL), Kenvue Inc.  (NYSE: KVUE), Kimberly-Clark (NYSE: KMB), L’Oreal (OR FP), Procter & Gamble (NYSE: PG), and Reckitt Benckiser (RKT LN), which trade at ~16x 2025E EV/EBITDA (in a range of 13x-19.5x.  Applying a blended multiple (based on margin profiles) in-line with the peer average implies aggregate value of €128.7 billion.  Lastly, the Nutrition segment could be compared with peers, such as Danone SA (BN FP), Kraft Heinz (NYSE: KHC) and General Mills (GIS), which trade at ~13x 2025E EV/EBITDA.  Applying the peer average to 2025E segment EBITDA implies value of ~€40.5 billion. 

Accounting for corporate costs as well as projected net debt (and minority interest) yields a preliminary base case valuation of ~€149 billion or ~€59 per share.

Close coverage of MASI, as of today’s close, with the stock trading toward the high-end of our bull/bear valuation scenario

For context, MASI shares returned ~50% (outperforming the S&P 500 and Russell 2000 indexes by ~18% and 24%, respectively) since our initial recommendation in August 2023.

That said, with the shares trading toward the high-end of our bull/bear valuation scenario (and the primary management change and potential separation catalysts already announced) we prefer to maintain a disciplined approach and close coverage, as of today’s market close (see Exhibit #1 on page 2).

As always, we will continue to monitor shares for an opportunity to re-recommend if valuation shifts or incremental catalysts emerge, but we would note that if (and/or when) a tax-free spinoff of the consumer business is announced coverage will also be resumed by our colleagues at The Spin-Off Report.

Just as an aside, while we will not continue to actively recommend MASI after today’s market close we would point out, in the spirit of honest debate, that if core-MASI were to trade at its historical multiples post any potential separation (i.e., ~25x) and Sound United were simply worth its $1.0575 billion purchase price one could reasonably calculate a fair value closer to ~$185 per share (which is still well below its all-time highs north of ~$300 per share and does not consider any potential legal settlements related to the on-going patent litigation regarding the Apple Watch or the potential impact from new product introductions).

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

MATW to explore strategic alternatives (with a particular focus on its Industrial Technologies segment); posts full-year F2024 results in-line at the low end of guidance along with F2025 expectations in-line with consensus; fair value adjusted to $44 per share (from $46 per share)

Last night, after the market close, MATW reported F2024 consolidated sales down 4.5% to $1.796 billion (versus consensus of $1.79 billion) with adjusted EBITDA down ~9% to $205.2 million (compared with consensus of $194.5 million and guidance of $205-$210 million).  Adj. EPS fell ~25% to $2.17 (compared with consensus of $2.00).  Broadly, results at Memorialization and SGK were roughly flat, which in terms of the latter marks a positive outcome, while Industrial Solutions results were down driven by order delays in Energy Storage along with weakness in Warehouse Automation.

The company ended F2024 with net debt of $735.7 million (versus $776.5 million in F2023) and a leverage ratio of 3.6x (versus 3.7x at year end F2023 and 3.5x at the end of F2022). The company’s long-term leverage target remains “at or below 3.0x” and management indicates that improving its leverage profile remains a “priority” in F2025.  Anecdotally, MATW expects operating cash flow to improve (off the ~$79.5 million level) in F2025 and plans for a capex budget of $50-$60 million.

In terms of F2025 guidance, the company provided a “cautious” full-year adjusted EBITDA outlook of $205-$215 million (compared with the current consensus estimate of $205 million), reflecting the expectations for continued stability at Memorialization, growth at SGK and uncertainty within the Industrial Technologies segment. 

That said, given the “growth opportunities” and perceived valuation disconnect management has retained J.P. Morgan to explore strategic alternatives.  While the review is expected to be comprehensive it, at least anecdotally, seems focused on the Industrial Solutions business (which we note itself is comprised of MATW’s Energy Storage, Warehouse Automation and Product Identification offerings).  

We adjust our base case fair value estimate for MATW to $44 per share (from ~$46 per share), reflecting a blended multiple of ~9.0x multiple on our F2026E adjusted EBITDA of $~$223.5 million and net debt of ~$632 million (see Exhibit #1 on page 2).

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

Comcast to Spin-Off Selected Cable Networks Assets via a Tax-Free Distribution

On November 20, 2024, prior to the market open, Comcast Corporation (NASDAQ: CMCSA) announced plans to spin-off a select group of its Cable Television Network assets into a new publicly traded public company via a tax-free separation.  As currently contemplated, SpinCo would include a portfolio of news (e.g., CNBC, MSNBC & USA), sports (e.g., USA & The Golf Channel), entertainment (e.g., E!, USA, SYFY & Oxygen) and digital (e.g., Fandango, Rotten Tomatoes, GolfNow & Sports Engine) properties that generated roughly $7 billion of sales in the trailing-twelve months (TTM) ended September 30, 2024 (and reached ~70 million U.S. households).

The transaction is expected to take roughly one year to complete (i.e., late-2025) and remains subject to customary conditions, including the receipt of tax & regulatory approvals, the securement of satisfactory financing arrangements and final Board approval.  (As well, the two future independent entities will need to hammer out a so-called “transition services agreement” prior to the transaction’s completion.)

Comcast broadly reports two segments: 1) Connectivity & Platforms (~65.5% of consolidated sales and ~83% of adj. EBITDA in 2023), which itself is comprised of two divisions, namely Residential Connectivity & Platforms (~88.5% of segment sales and 83.5% of segment EBITDA) and Business Services Connectivity (11.5% of segment sales and 16.5% of segment EBITDA); and 2) Content & Experiences (34.5% of sales and ~17% of adj. EBITDA), which includes three divisions, including Media (~55.5% of segment sales and 39% of segment EBITDA in 2023), Studios (~25.5% of segment sales and 17% of segment EBITDA) and Theme Parks (19% of segment sales and 44% of segment EBITDA in 2023).  On a consolidated basis, CMCSA generated $121.6 billion of revenue in 2023 and ~$37.6 billion of adj. EBITDA (compared with $212.4 billion and ~$36.5 billion in 2022).  In the first nine months, the company posted consolidated top-line growth of 1.7% to $91.8 billion while adj. EBITDA declined 1.2% to $29.26 billion. 

While the company did not hold a conference call this morning regarding the proposed transaction nor did management publicly provide any specific profitability guidance for the potential SpinCo assets, which are currently included within the Media division of the Content & Experiences segment, we estimate that based on its top-line commentary indicating the business generated TTM sales of ~$7 billion (as well as the suggestion that the transaction will be “accretive” to CMSCA’s top-line growth profile and “neutral” to its leverage profile) we think it could be reasonably estimated, when considering the on-going losses at CMCSA’s streaming efforts (i.e., Peacock), that the EBITDA contribution could be around $2.0-$2.5 billion (making it a relatively minor portion of the parent’s overall portfolio (particularly as it relates to the core Connectivity & Platforms segment, which, again, generates ~65.5% of consolidated sales and nearly ~85% of adj. EBITDA).  To be sure, so-called legacy cable networks have been having a rough go of it in recent years amid “cord cutting” and a rapidly changing operating/competitive landscape but they still tend to be solid cash flow generators (or, more colloquially, cash cows).  That said, based on our cursory knowledge of the industry it seems to us that while the transaction will be accretive to CMCSA’s growth and margin profile it sets free a relatively sub-scale business into an industry with durable structural headwinds/issues.  To that end, we would assume that as a standalone SpinCo is likely to garner a lower valuation than that currently awarded to the parent as well as other media peers, which coupled with dis-synergies, suggests the transaction, in and of itself, is likely to unlock significant immediate value.  More broadly, it could be reasonable to postulate, again based on our cursory knowledge of the industry landscape, that the underlying rationale for the spin-off could be aimed more at positioning SpinCo to eventually participate in potential industry consolidation (particularly amid what both corporates & investors perceive could be a less stringent regulatory environment during the incoming administration).    

In terms of valuation, the bulk of pre-spin CMCSA undoubtedly lies in the Connectivity & Platforms (~65.5% of consolidated sales and ~83% of adj. EBITDA in 2023), which could be compared with peers, such as AT&T (NYSE : T), Charter Communications (NASDAQ : CHTR), Lumen Technologies (NYSE : LUMN), T-Mobile (NASDAQ: TMUS), and Verizon Communications (NYSE: VZ), which trade, on average, at ~7.5x 2025E EV/EBITDA (or ~7x, ex-TMUS).  Applying a 7.0x multiple to 2025E EBITDA implies value of nearly $321 billion.  For Content & Experiences, Fox Corp. (NASDAQ: FOX), Disney (NYSE: DIS), Paramount Global (NASDAQ: PARA), and Warner Bros. Discovery (NASDAQ: WBD), which trade, on average, at 8.5x 2025E EV/EBITDA (or ~7.0x ex-DIS), could be considered peers to varying degrees. Applying a blended multiple of ~6.0x, reflecting a discounted multiple for SpinCo even within Media as well as a modest premium for Studios and Theme Parks, implies value of over $47 billion .Accounting for corporate costs and projected net debt yields an initial sum-of-the-parts valuation (SOTP) of ~$176.5 billion or ~$45.50 per share (based on a diluted share count of ~3.9 billion).

BUY-rated BERY to Merge with AMCR in All-Stock Transaction Valuing it at $73.59 per share (an ~10% premium to last night’s close and roughly in-line with our FVE); Reports F2024 Results and Issues F2025 Guidance

This morning, Berry Global Group, Inc. (NYSE: BERY) announced an agreement to merge with Amcor plc (NYSE: AMCR) in an all-stock transaction that values BERY at $73.59 per share, representing a ~10% premium to last night’s close.  For context, the “purchase” price is roughly in-line with our initial $75 per share fair value estimate (FVE), which based on an updated share count of 117.4 million (previously 115.1 million) we note is slightly reduced to $74 per share (see Exhibit 1 on page 2).

Berry shareholders will receive a fixed exchange ratio of 7.25 AMCR shares (per each BERY share held) resulting in Amcor shareholders ultimately owing ~64% of the combined company and BERY holder the remaining ~37%.  Peter Konieczny, AMCR’s current CEO, will remain at the helm of the combined company, which will retain the Amcor corporate moniker, while BERY’s current chairman, Stephen Sterret, will join as Deputy Chairman. All told, Amcor’s post-transaction Board will expand to 11 members, of which 4 will be nominated by BERY.

The merger, which is expected to generate synergies of ~$650 million (over 3-years) and close in the “middle of 2025”, is billed as the complementary combination of two leaders in their core flexibles and containers/closures verticals.  For our part, we certainly acknowledge the strategic rationale for the transaction (and think the “purchase” price is fair considering it was roughly in-line with our valuation analysis; see Exhibit 1 on page 2) but would suggest that history suggests the synergy target may prove to be somewhat of a high hurdle. 

CombineCo (or new Amcor) is expected to generate consolidated sales of ~$24 billion with adj. EBITDA of ~$4.3 billion (including synergies).  Annual cash flow is projected to exceed $3 billion and pro forma net leverage is expected to be 3.3x (with the target of de-levering to 3.0x during the first-year post-closing).

Perhaps less importantly, BERY concurrently reported 4Q F2024 results with sales up ~3% to $3.17 billion (versus consensus of $3.13 billion), including organic growth of ~1%, with adj. EBITDA and EPS roughly flat at $546 million and $2.27, respectively (compared with consensus of $559 million and $2.25, respectively).

As well, the company issued full-year F2025 guidance calling for adjusted EPS of $6.10-$6.60 (compared with ~$6.00 in F2024) with free cash flow (FCF) of $600-$700 million (on cash flow from operations of $1.125-$1.225 billion).  The company ended F2024 with a leverage ratio of 3.5x and expects further improvement in that metric during F2025.  The company hiked its quarterly dividend by ~13% to $0.31 per share, which it expects to pay until the Amcor transaction closes.  Anecdotally, organic growth is expected to remain in the low single-digits in F2025 (consistent with what the company experienced in 2H F2024). 

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.

SPB Posts Mixed 4Q F2024 Results with F2025 Guidance Broadly Within Our View of Expectations; Dual-Track Spin/Sale Process Continues (but Commentary Suggests to us that a Sale is the More Likely Outcome); Maintain NEUTRAL (but, all else being equal, could envision warming up to the story in the low-to-mid $80’s)

This morning, before the market open, Spectrum Brands (NYSE: SPB) posted 4Q F2024 (September-ending) results demonstrating consolidated sales up ~4.5% to ~$774 million (ahead of the ~$745 million consensus estimate) while adj. EBITDA declined ~38% to $69 million, including ~$26 million of incremental brand investments (compared with consensus of $74.5 million).  Adj. EPS fell ~13.5% to $0.97 (versus consensus of $1.07).

For the full year, SPB generated consolidated sales growth of 1.5% to $2.96 billion with adjusted EBITDA of ~35% to ~$372 million.  Adjusted EPS were $4.06 (versus $0.64 in the prior year).

The company ended F2024 with a net leverage ratio of under 0.6x, including cash of ~$369 million and debt of ~$561 million.  Also, the company increased its quarterly dividend by ~12% to $0.47 per share (equating to a current yield of ~2%).

In terms of guidance, reflective of the expectation of another “challenging environment”, SPB projects consolidated top-line growth in the “low single-digits” (with that level of growth being demonstrated across all three segments) with “mid-to-high single digit” adjusted EBITDA growth (as volume & cost improvements offset incremental brand investment, shipping & tariff costs).  Adjusted free cash flow conversion is expected to be ~50% of adj. EBITDA.  The outlook is underpinned by the expectation for cash taxes and restructuring costs of $40-$45 million and $30-$40 million, respectively.  Capital expenditures and Depreciation & Amortization are projected to be $50-$60 million and $115-$125 million, respectively (see Exhibit 1 on page 2).

On this morning’s conference call, management indicated that the dual-track spin/sale process for the Home & Personal Care (HPC) business remains on-going although we would say that the anecdotal commentary suggests, at least sub-textually, that the sale route is the more likely/preferred outcome.  To that end, the company seemed to indicate it was in active/ongoing negotiations with two potential buyers but that the unrest in the Middle East and lead up to the U.S. election had somewhat slowed the process. 

As highlighted in our initial report dated October 18, 2024, while management commentary has, in our view, consistently supported a sale (as opposed to a spin) it should be noted that per filings “it is more likely than not that the majority of its federal & state deferred tax assets related to loss and credit carryforwards will not create tax benefits in the future”.  In that context, we would further note that if the HPC business were to be sold (rather than spun) our current valuation framework would implicitly value the HPC business at ~8x (assuming a corporate tax rate of ~21%-25%; see Exhibt 2 on page 2).

We maintain our NEUTRAL rating but, all else being equal, could envision our warming up to the story on the lower-to-mid $80’s.

Again, please see the comprehensive Spin-Off Report dated October 18, 2024 for more information.

SUNN Begins Trading “Regular Way” on the SIX Swiss Exchange; Downgrade LBTYA to NEUTRAL on Post-Spin Price Appreciation; Maintain BUY Rating on SUNN Given Initial Implied Upside to FVE

Today, Sunrise Communications (SUNN SW) began trading “regular way” on the SIX Swiss Exchange.

Recall, on Wednesday, November 13^th the American Depositary Shares (ADSs) of Sunrise Communications (NASDAQ: SNRE) began trading “regular way”. (For context, in “when-issued” trading ADS shares initially began trading at CHF 36.50 per share and closed Tuesday at CHF 44.37 per share.)

Notably, the ADSs will only for nine months, and all Class A & C ADS holders can convert their shares into SIX traded Class A common shares (ticker SUNN) at any time (with the $0.05 conversion fee waived for the first three months).

Given LBTYA’s ~17% jump post the ADSs debut (versus its split-adjusted closing price of $10.93) we downgrade our rating to NEUTRAL (from BUY), as of today’s close, while maintaining our BUY rating on SUNN given the implied upside to our fair value estimate (and our broad expectation that post-spin volatility is likely to be relatively muted). 

For context, our valuation for SUNN (see Exhibit 1 on page 2) is based on an equal weighted, blended fair value scenario using adj. EBITDAaL and EV/adj. FCF multiples (based on management’s 2024E guidance).  In terms of comparables, we have looked at Swisscom’s trading multiple and applied no significant discount due to: 1) SUNN’s implied dividend yield of ~6.4% based on our valuation target (compared with Swisscom’s at 4.0%); 2) SUNN’s challenger position and market share gains over the last 3-4 years (versus Swisscom); and 3) SUNN being a pureplay Swiss player (versus Swisscom’s roughly 40% operating exposure to Italy, which we expect will increase from 23% following the completion of the Vodafone Italy deal in 1H 2025).

Again, post-spin, Liberty Global will consist of its European assets, including the VMO2 JV (UK), Telenet (Belgium), Vodafone Ziggo (Netherlands), and Virgin Media (Ireland), as well as its other investment ventures. We value LBTY using a sum-of-the-parts (SOTP) approach, applying suitable peer multiples to each operating unit and adjusting for factors such as leverage, minority interests, and a conglomerate discount (see Exhibit 2 on page 3).  Despite our lowered rating (based on the limited implied upside to our initial base case valuation given recent price appreciation), we would remind investors that LBTY could possess several ancillary levers to generate upside, including share repurchases (i.e., the 10% buyback planned in 2024, of which 8% has already been completed through 3Q 2024), potential incremental value creation from its holdings in the Venture business, and any value unlocking from potential monetization options at UK NetCo (i.e., VMO2’s cable & fiber assets) and Benelux HoldCo (i.e., its stakes in Telnet & VodafoneZiggo).  

Please see the comprehensive Spin-Off Report dated November 1, 2024, and the Update from 11/13/2024 for more information.

Sunrise Comms. ADSs Begin Trading Regular-Way under ticker SNRE with the SUNN Listing on SIX to Commence on Friday; Maintain BUY Ratings on LBTYA and SUNN

This morning, the American Depositary Shares (ADSs) of Sunrise Communications (NASDAQ: SNRE) began trading “regular way”.  (For context, in “when-issued” trading shares initially began trading at CHF 36.50 per share and closed yesterday at CHF 44.37 per share.)

The ADSs will temporarily trade, for nine months, on Nasdaq under the ticker SNRE with LBTY shareholders having received one Class A ADS for every five Class A or C shares owned and two Class B ADSs for each Class B share (primarily owned by management). 

Class A & C ADS holders can convert their shares into SIX traded Class A common shares (ticker SUNN) at any time (with the $0.05 conversion fee waived for the first three months). Sunrise Class B ADS holders can convert the same to common Class A shares listed on SIX or continue to hold unlisted Sunrise Class B shares in Switzerland.

The listing of Sunrise Communications on the SIX Swiss Exchange (under the ticker SUNN) is expected to begin trading on Friday, November 15^th. 

Given the implied upsides to our current fair value estimates in initial trading, we maintain our initial BUY ratings on LBTYA and SUNN (in-line with our initial pre-spin recommendation).

Our valuation for SUNN (see Exhibit 1 on page 2) is based on an equal weighted, blended fair value scenario using adj. EBITDAaL and EV/adj. FCF multiples (based on management’s 2024E guidance).  In terms of comparables, we have looked at Swisscom’s trading multiples and applied no significant discount due to: 1) SUNN’s implied dividend yield of 6.2% at our valuation versus Swisscom’s 4.0%; 2) SUNN’s challenger position and market share gains over the last 3-4 years (versus Swisscom); and 3) SUNN being a pureplay Swiss player (versus Swisscom’s roughly 40% operating exposure to Italy, which we expect will increase from 23% following the completion of the Vodafone Italy deal in 1H 2025).

Post-spin, Liberty Global will consist of its European assets, including the VMO2 JV (UK), Telenet (Belgium), Vodafone Ziggo (Netherlands), and Virgin Media Ireland, as well as its investment ventures. We value LBTY using a sum-of-the-parts (SOTP) approach, applying suitable peer multiples to each operating unit and adjusting for factors such as leverage, minority interests, and a conglomerate discount (see Exhibit 2 on page 3).

Please see the comprehensive Spin-Off Report dated October 31, 2024, for more information.

IAC to consider a potential spin-off of its ~85% ownership in ANGI; slightly raises the mid-point of full year 2024E adj. EBITDA guidance

Last night, after the market close, IAC announced that the company was considering a spin-off of its 85% stake in home improvement marketplace Angi Inc. (NASDAQ: ANGI).  In terms of timing, while not committing to a specific timeline for a decision management indicated it would likely come by the end of 2Q 2025 (with anecdotal commentary suggesting the company is ultimately more likely than not to move ahead with a transaction). Also, IAC will begin to report Care. com as a standalone segment beginning in 4Q 2024 (currently in the Emerging & Other segment).

While the contemplation of an ANGI separation is not overly surprising given IAC’s long history of spins (i.e., Ticketmaster, ILG, Lending Tree, HSN, Expedia, TripAdvisor, Trivago, Match Group, & Bluecrew) the timing comes somewhat earlier than we would have expected as Angi is still going through a bit of a turnaround (with the focus on service & profitability as opposed to sales growth) and the valuation/stock price remains depressed.  That said, the transaction should create a leaner parent company that would be seemingly easier for investors to value (i.e., reduce its conglomerate discount) as well as provide ANGI’s stock with increased liquidity. 

Concurrently, the company posted 3Q 2024 sales down ~16% to $938.7 million (versus consensus of $922.3 million), as a 5% gain at Dotdash Meredith (~47% of consolidated sales) was more than offset by a 16% decline at Angi (31.5% of sales), in part driven by a renewed focus on profitability, and a 47% drop at the legacy Search business (~9.5% of consolidated sales).  Adj. EBITDA increased ~7% to $107.4 million (versus consensus of $90.2 million), largely driven by ~27% growth at ANGI (along with ~1% growth at Dotdash Meredith).

In terms of full year guidance, the company currently projects consolidated 2024E adj. EBITDA of $355-$400 million (or $377.5 million at the midpoint compared with the previous forecast of $372.5 million & prior consensus of $375 million).  By segment, IAC expects adj. EBITDA of $290-$310 million and $140-$150 million at Dotdash Meredith and Angi, respectively (compared with the prior guides of $280-$310 million and $130-$150 million). At Search and Emerging & Other, adj. EBITDA is expected to be $15-$20 million and $5-$15 million, respectively (versus the prior guides of $20-$40 million and $0-$15 million). Corporate costs are projected to be $90-$95 million while stock-based compensation and depreciation & amortization expenses are projected to be $110-$120 and $255-$275 million, respectively (see Exhibit #1 on page 2). 

Notably, we highlight that the implied value of IAC’s so-called “stub” has remained relatively flat over the last several quarters, which, for context, represents among the lowest implied valuation we have seen over the last several years and a material discount to our fair value estimate of ~$3.015 billion (see Exhibits #2 & 3 on pages 2-3). 

In terms of valuation, among its private holdings, based on IAC’s guidance and commentary, as well as peer and M&A valuations, we value Dotdash Meredith at ~$23 per share and Emerging & Other at $10 per share, which awards per share values of ~$7 and ~$3.50 to Care.com and Vivian Health, respectively, while assigning zero value to the other businesses (i.e., The Daily Beast, IAC Films and Newco). Search’s profits are assumed to partially offset corporate costs, while Turo is valued at ~$4 per share. For its public holdings, based on slightly discounted prices, we value ANGI at ~$11.00 per share and MGM at ~$33 per share. Accounting for remaining corporate costs as well as net debt yields a total sum-of-the-parts value of ~$72 per share (with bull and bear cases of ~$89 and ~$40.50 per share, respectively; see Exhibit #4 on page 4).

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