On January 29, 2015, The Manitowoc Company, Inc. (NYSE: MTW) announced a plan to separate its Cranes and Foodservice businesses into two independent, publicly traded companies via a tax-free spin-off, expected to be completed in the first quarter of 2016. The proposed separation is subject to effectiveness of appropriate filings with the Securities and Exchange Commission and final approval by the company’s Board of Directors.

In addition to the proposed spin-off, Manitowoc announced that the Board has approved amendments to the company’s by-laws to eliminate its classified board structure on a phased-in basis, commencing with the elections which occurred at the company’s 2015 annual meeting of shareholders. In addition, upon completion of the separation, the spin-off company will have an annually elected Board of Directors. Currently, the Manitowoc Board is divided into three classes, with each director class serving a staggered term of three years. Under the terms of the declassification, all current directors will serve the remainder of their terms and thereafter become subject to election each year by shareholders. The change is scheduled to go into effect beginning with those directors whose terms expired at the 2015 annual meeting. As of the 2017 annual meeting, all Board members will be subject to annual election.

Founded in 1902, the Manitowoc Company is a multi-industry capital goods manufacturer operating under two main segments—Cranes and related products (59% of 2014 sales, FY ending December) and Foodservice equipment (41% of 2014 sales). The Cranes business, which reported annual revenue of $2.3 billion in the 12 months ended December 31, 2014, is one of the largest providers of lifting equipment for the global construction industry, including lattice-boom cranes, tower cranes, mobile telescopic cranes, and boom trucks. The business holds leading market positions and has highly recognized brands, including Manitowoc, Grove, National Crane, Potain, Shuttlelift, and Crane Care brand names. The business generates nearly 60% of its revenue from non-U.S. markets. The Foodservice business, which reported annual revenue of $1.6 billion in the 12 months ended December 31, 2014 ($1.2 billion for the first nine months of 2015), is a leading manufacturer of commercial foodservice equipment serving the ice, beverage, refrigeration, food prep, and cooking needs of restaurants, convenience stores, hotels, hospitals, and other institutions. The business has a worldwide network of 120 distributors and promotes more than 24 industry-leading brands, including Manitowoc, Garland, Convotherm, Cleveland, Lincoln, Merrychef, Frymaster, Delfield, Kolpak, Kysor Panel, Servend, Multiplex, KitchenCare, INDUCS, Koolaire, and Manitowoc Beverage System.

Following the transaction, the Cranes business will remain with the parent, retaining the Manitowoc Company name and ticker. The Foodservice business will take the name Manitowoc Foodservice, Inc., and is expected to trade on the NYSE under the ticker “MFS”. The transaction is the culmination of mounting pressure from activist investors, who have for some time suggested a separation of these two disparate (and underperforming) businesses. The Foodservice segment has suffered adverse product mix and poor execution, as MTW’s consolidation and restructuring actions resulted in weaker profitability in 2014 and into 2015, from originally targeted operating margins of 17.5% to 12.9% in the most recently reported quarter (3Q 2015). Similarly, a demand recovery in the Cranes sector has been elusive, owing primarily to weak demand for rough terrain and boom trucks in North America and weak recovery of non-residential construction markets (particularly utility power plants). Accordingly, in June 2014, Relational Investors disclosed an about 8.5% stake in MTW, stressing that a separation of the two businesses, which it contended had materially different operating metrics and cyclicality, would enhance capital allocation and strategic flexibility, as well as attract a more focused shareholder. Management was resistant to the proposal, filing an 8-K presentation in late August defending the combined businesses. Subsequently, in December 2014, activist investor Carl Icahn (MTW’s second largest institutional investor) disclosed, via a 13D filing, an almost 8% stake in MTW, which similarly called for a split of the two businesses as well as indicating a willingness to seek Board representation.

Based on an analysis of comparable revenue growth, EBITDA, and EPS, we arrive at a pre-spin sum-of-the-parts valuation of $15.28 for MTW, comprising $2.72 for post-spin MTW and $12.55 for MFS. The pre-spin fair value estimate implies approximately 17% upside to the shares’ current price ($13.02 as of this writing). Despite the upside potential, however, we would recommend remaining on the sidelines pre-spin. Given the potential for continued volatility in the Cranes business, shares of post-spin MTW will likely experience near-term selling pressure, owing to concerns over the long-term viability of this business as a separate entity given weak order growth (down 39% year-over-year in the most recently reported quarter), deteriorating margins, and weakening global end markets. Rising leverage associated with weakening profitability metrics is also likely to be a key concern, a view supported by the historical underperformance of highly leveraged U.S. machinery companies. Note that the pre-spin company has $1.6 billion in long-term debt and a debt to equity ratio of 2.07x. That said, investors with a longer term investment horizon may rotate into shares of MFS, given attractive restaurant industry fundamentals and margins. Additionally, it is important to note that our fair value estimates are subject to revision as incremental capital structure details become available.

On August 3, 2015, Community Health Systems Inc. (NYSE: CYH) announced its intention to separate 38 hospitals and Quorum Health Resources, LLC, a hospital management and consulting business, via a tax-free spin-off. The transaction was originally expected to be completed in 1Q 2016. On January 7, 2016, CYH announced a revised timeline to complete the spin in 1H 2016. The company stated that the longer timeline was due to market conditions. The delay was likely due to the market volatility at the time of the announcement, which may have affected the company’s ability to refinance debt.

The spin company, to be named Quorum Health Corporation, will include a diversified portfolio of 38 hospitals with an aggregate of 3,587 licensed beds across 16 states. The hospitals that will comprise Quorum Health Corporation have strong market positions and are primarily located in cities or counties having populations of 50,000 or less. In 84% of these markets, the QHC hospital is the sole provider of acute care hospital services. Quorum Health Corporation will also include Quorum Health Resources, which provides hospital management and consulting services to 150 non-affiliated hospitals across the U.S., most of which are located in markets similar to Quorum Health Corporation’s sole-provider hospitals.

Quorum Health Corporation, which is expected to have the ticker QHC, will effectively take shape as a throwback to CYH’s roots as a small group of rural-based, sole-provider hospitals. CYH, the parent, will focus on expanding services offered at its larger networked hospitals, which were mostly acquired since 2007. The two systems have bifurcated operating and capital needs, which has resulted in QHC’s portfolio being largely underinvested under the current corporate structure. Given this rationale, it should not be expected that an immediate value unlocking will occur. Instead, both systems’ potential upside arises from their ability to conduct accretive acquisitions and widen margins through centralized systems and cost controls, which is not much different from CYH’s overall goals in recent years.

The delaying of the spin-off follows the October 2015 pre-announcement of CYH’s 3Q 2015 results, which included a 15% year-over-year decline in adjusted EBITDA, as quarterly admissions declined 1.9% (2.1% decline on a same-hospital basis). Shares of CYH fell 35% on the day of the pre-announcement.

Based on forecast earnings, pre-spin shares of CYH can be fairly valued at $25 per share ($3.66 per share of QHC and $21.09 per share of post-spin CYH). Post-spin QHC is fairly valued at $16.49 per share based on an expected distribution ratio of 1:4.5. The fair value estimate represents 23.5% potential upside from the price as of this writing. Despite the implied upside to the fair value, the shares are not recommended for purchase at this time. The uncertainty surrounding current admissions trends and their impact on near-term earnings, along with the lack of definitive timing for the spin-off transaction, creates risks related to the forecast earnings and ultimate structure of the post-spin entities. In order for us to become more positive on the shares prior to the spin, admissions trends need to show stability, and management needs to more clearly define the transaction timeline. Positive catalysts for QHC or post-spin CYH would include faster than anticipated margin expansion or an aggressive acquisition strategy, particularly if focused on states that are expanding Medicaid.

On November 5, 2014, American Capital Ltd. (NASDAQ: ACAS) announced a plan to spin off its investment assets in the form of two publicly traded business development companies (BDCs), with the parent company, American Capital, retaining its asset management business (ACAM). Subsequently, on May 6, 2015, ACAS revised its transaction plan to spin off only one entity, American Capital Income (ACAP), which will control the majority of ACAS’s debt and equity investments. American Capital Income is expected to qualify as a BDC and elect registered investment company (RIC) status, and as such will be required to distribute at least 90% of investment company taxable income to shareholders. Following the separation, ACAS will consist primarily of ACAM and will operate as an alternative asset manager, overseeing permanent capital in the form of publicly traded REITs and BDCs and private structured products, both debt and equity funds. The separation effectively transforms ACAS into an externally managed BDC from an internally managed one.

The transaction is subject to final approval by the American Capital Board of Directors, the effectiveness declaration of registration statements by the SEC, receipt of a tax opinion, a refinancing of the company’s indebtedness, and the establishment of credit facilities for the new BDC, as well as refinancing by American Capital of the portfolio companies’ third-party debt and resolution of certain co-investment issues. In addition, shareholders must approve, among other things, the parent company’s plans to withdraw its election as a BDC, which cannot be done without consent of the holders of a majority of the outstanding voting shares.
ACAS is a Bethesda, MD-based private equity and asset management firm. The company elected to be regulated as a business development company under the Investment Company Act of 1940; however, following the company’s September 30, 2010, tax year, ACAS relinquished its regulated investment company status and elected to be classified as a corporation (subchapter M), and as such is subject to corporate income tax. The company has not paid a regular dividend since the reclassification.
The rationale for the planned spin-off is rooted in the fact that shares of ACAS have historically traded at a sharper discount to net asset value (NAV) than peers. The wider discount can be attributed to ACAS’s lack of a dividend payment and the lower NOI (or net operating income) margin achieved due to capital allocation into lower-returning assets. Shares of ACAS have traded at an average P/NAV of 0.71x versus comparable internally managed BDCs’ average of 1.15x since the beginning of 2011. The discount has persisted despite an increase in NAV per share. It should be noted that NAV per share has benefited from significant share repurchases, as the actual net asset value has not experienced the same degree of appreciation. Since 3Q 2011, NAV per share has increased 71.5%, while NAV has increased 32.1%.

Subsequent to the filing of ACAS’s Form 10 and proxy statement filing, Elliott Management released a letter to ACAS’s Board of Directors, a slide presentation, and an associated website that called for ACAS shareholders to vote “AGAINST” the proposed spin-off of American Capital Income. Among its objections to the separation, Elliott cited the persistent underperformance of ACAS shares relative to peers, ineffective capital allocation by management, an unqualified Board of Directors, and a bloated cost structure, including excessive compensation. As an alternative to the planned spin-off, Elliott proposed withdrawing the spin-off, strengthening the Board, reviewing capital allocation policies, and cutting overhead costs.

On November 25, 2015, ACAS released a statement that the company had hired financial advisors to conduct a strategic review of all alternatives for maximizing shareholder value. The company also announced that the board has increased the current stock buyback program to a range of $600 million to $1 billion from $300 million to $600 million. American Capital expects to announce the initial results of the strategic review no later than January 31, 2016.

The ultimate outcome of Elliott’s push to stop the spin-off and ACAS’s strategic review is still unknown; however, it can be noted that ACAS assets appear undervalued in the current corporate structure. It is possible that whether or not the spin-off is eventually completed, the shares are still an attractive value in the sense that if the spin-off does occur, and management is successful in transitioning its portfolio to higher-yielding investments, combined with the addition of a dividend payment at American Capital Income, the sum of the parts should increase versus current levels. Alternatively, if the spin-off is not completed, and Elliott gains sufficient influence, better capital allocation (including share repurchases at deep discounts to NAV) could drive a higher NAV per share and eventually reduce the current trading discount.

Based on a sum-of-the-parts analysis, including valuing ACAP’s assets at a discount to NAV, potential dividend payments, and earnings potential from post-spin ACAS, a fair value estimate of $16.90 per share is derived (consisting of $11.16 per share of ACAP and $5.73 per share of post-spin ACAS), representing almost 19% of potential upside from the current share price of $14.22.

It should be noted that this sum-of-the-parts valuation values ACAP’s investment assets at 0.85x net asset value, which represents a discount to other externally managed BDCs historical trading multiples. Upside to this estimate exists in expansion to a valuation closer to NAV ($20.44 per share as of this writing); however, given the need for ACAP to shift its portfolio out of lower-yielding assets to receive a more in-line multiple, which may take several years, near-term upside to this fair value may be limited. However, longer-term investors with a positive outlook on the BDC environment may wish to hold shares even at levels exceeding our fair value estimate. As an aside, a positive outcome for Elliott’s proxy contest (cancelation of the planned spin) could accelerate the timeline to achieving parity between NAV and share price, as ACAS would theoretically remain an internally managed BDC, a type of entity that trades at higher multiples than externally managed BDCs. As such, in combination with the current upside potential and favorable risk/reward characteristics of the current share price, shares of ACAS are recommended for purchase prior to the outcome of the company’s strategic review (scheduled to conclude by January 31, 2016).

On February 5, 2015, W.R. Grace & Co. (NYSE: GRA) announced a plan to spin off its Construction Products and Packaging business via a tax-free spin-off. The transaction is expected to be completed in the first quarter of 2016 and is subject to the customary closing conditions, including final approval by Grace’s Board of Directors. The parent company, Grace, will consist of Grace’s Catalysts Technologies and Materials Technologies business segments (excluding the Darex packaging business), and GCP Applied Technologies – the spin-off – will consist of Grace’s Construction Products business segment and the Darex packaging business. Fred Festa, Chairman and Chief Executive Officer, and Hudson La Force, Senior Vice President and Chief Financial Officer, will remain with New Grace. Greg Poling, currently President and Chief Operating Officer of Grace, will become President and Chief Executive Officer of New GCP.

W.R. Grace & Co. is a specialty chemicals and materials company, headquartered in Columbia, Maryland, that emerged from Chapter 11 bankruptcy protection in February 2014 after more than 12 years. (In 2000, the company was facing nearly 130,000 personal injury and property damage claims relating to its former ZONOLITE attic insulation product, which was discontinued in the 1980s.) Grace generated 2014 revenue of $3.2 billion, with more than two-thirds outside the United States. The company operates through three business segments: (1) Grace Catalyst Technologies; (2) Grace Materials Technologies; and (3) Grace Construction Products. Grace Catalyst Technologies is the largest segment, accounting for about 40% of revenue. In its spin-off announcement, the company noted that the move was aimed at enhancing its strategic focus, creating a simpler operational structure, and allocating capital efficiently for both independent entities.

New Grace, which is primarily focused on process catalysts and specialty silicas, includes the Material Technologies business, which consists of silica-based engineered products as well as sealants and coatings. The company has an estimated 10% share of the $16 billion global catalyst market and is the world’s largest provider of FCC (fluid catalytic cracking) catalysts, residue hydroprocessing catalysts, and independent polyethylene catalysts. Post separation, annual sales are expected to be approximately $1.8 billion. The company also operates a joint venture (JV) with Chevron Corp. (NYSE: CVX) called ART (Advanced Refining Technologies, LLC), which supplies a portfolio of hydroprocessing catalysts. Including this JV, annual revenues are expected to be $2.2 billion post separation.

Post-spin Grace will operate in a healthy, oligopolistic industry with strong barriers to entry and few competitors—which should result in consistent earnings and free cash flow growth. The company is expected to make strategic acquisitions in its core segments to expand its high-margin specialty chemicals and performance materials portfolio. The spin-off essentially separates a higher-multiple operation, effectively creating a new “acquisition currency” to grow the company’s catalyst franchise. Post spin, debt will be 2.0x-2.5x EBITDA at New Grace and 3.0x-3.5x at GCP, with GCP raising its own debt and paying Grace with the proceeds. Importantly, the Catalyst business is driven by end-user demand for transportation fuel and plastics, and weaker oil prices have no significant impact on this business. New Grace should be able to capitalize on strong secular trends—most notably, trends in heavy crude oil processing (oils are heavier and dirtier, requiring new treating solutions), as well as more stringent clean air mandates, which require increased use of hydrotreating. The underlying businesses have the ability to grow at 1.5-2.0x global GDP and can generate annual free cash flow of $400-$500 million. Besides selected potential bolt-on acquisitions, management is focused on returning excess cash to shareholders through dividends and buybacks.

GCP Applied Technologies is a leader in cement and concrete chemicals, specialty building materials, and can sealants and coatings. The company’s Construction Products include cement additives, concrete admixtures, and waterproofing products. The Darex packaging business supplies can sealants, closure sealants, and can and closure coatings to the packaged food and beverage industry. Post separation, sales are expected to be approximately $1.5 billion, with net leverage between 3.0x and 3.5x adjusted EBITDA. Despite being in the early stages of the construction recovery in North America and emerging markets, Grace has improved its operating margin from trough levels of approximately 10% to over 14%, with the potential to approach the company’s mid-cycle range of 16% to 18%.

Diversified chemicals suppliers tend to trade at higher multiples than more volatile sub-segments such as commodity and agricultural chemicals. We would expect Grace to trade at a higher multiple and trade at around 12x-14x EV/EBITDA based on its stronger ROIC metrics, while GCP should trade at an 8x-10x EV/EBITDA multiple based on its lower margin profile. Based on an analysis of revenue growth, EBITDA, and assets, we arrive at a pre-spin sum-of-the-parts valuation of $101 for GRA, comprised of $79 for New Grace and $22 for GCP Applied Technologies. The pre-spin fair value estimate implies approximately 2% upside to the shares’ current price ($99 as of this writing), and a blended multiple of 11.5x consolidated estimated 2016 EBITDA of $791 million (versus a current consolidated company multiple of 11x), implying that the valuation appears to adequately reflect the incremental value associated with the split. Over the longer term, there may be potential upside as GCP becomes either a construction cycle recovery pure-play or a consolidation target, potentially expanding into a valuation that might have not been achieved as part of a broader GRA portfolio. Shares could see upside closer to $110 should the company return to higher normalized earnings in its Venezuelan operations and generate improved operating leverage from increasing catalyst capacity utilization. Note that despite reporting 3Q15 results that surpassed expectations, GRA did not raise its EBITDA guidance and now expects Venezuelan earnings to be negligible going forward. GCP’s capitalization structure (including any incremental debt and the amount of the company’s cash payment to the parent entity) has not been finalized, and as such, any new material information would affect our fair value estimate assumptions going forward.

BM&FBovespa (BVMF3 BZ), based in São Paulo, Brazil, is the country’s securities and derivatives exchange. It is the leading exchange in Latin America, offering trading in cash equities, fixed-income securities, FX spot and a full suite of derivatives, as well as clearing operations, market data, securities lending and a range of other services. After years of consolidation, BM&FBovespa operates, effectively, as a monopoly within the country and is a key asset in the future development of the country’s economy and financial sector. Its current market valuation, however, appears to minimize the stature of the exchange, the magnitude and stability of its current earnings, and the likelihood of future earnings expansion given the exchange’s role in Brazil’s growing economy. The market also appears to be discounting the value of its 4% equity interest in CME Group (NYSE: CME), which is worth nearly 25% of BM&FBovespa’s current enterprise value. If one were to adjust the enterprise value for this investment and make the appropriate adjustments to earnings, BM&FBovespa is currently trading at below 10x 2015 earnings estimates, whereas comparable companies can easily trade for 20x earnings or more. This discount, combined with the quality of this asset, outweighs any country risk one might attach to Brazil. Because of this, shares of BM&FBovespa are recommended for purchase.

Bilfinger SE (GBF GR) is a German industrial company that provides maintenance, repair, construction and other services to the real estate, industrial and power sectors. In 2014 it started experiencing reduced profitability, primarily due to pricing pressure and fewer orders from power and utility clients, and secondarily due to lower capital expenditures by industrial clients. As a result, its stock price has lost approximately half of its value since July 2014.

Cevian Capital, the renowned European activist investment firm, has been Bilfinger’s largest shareholder since 2011. Cevian emerged as the top Bilfinger investor in the end of that year, when it was announced that it owned 12% of the shares. Based on the German company’s prevailing stock price at the time, Cevian probably acquired its stake at a price of approximately EUR 60 per share. Furthermore, following the material decline in Bilfinger’s share price, the activist investor doubled down, raising its ownership to 26% by September 2014. As Bilfinger engineers a turnaround, the role of Cevian Capital appears critical; having just one Board seat prior to 2014, in the aftermath of Bilfinger’s profit decline it managed to appoint one of its partners, Dr. Eckhard Cordes, as Chairman, replace the CEO and CFO, as well as execute additional management changes.

In June 2015, Bilfinger began to sell or announce the divestment of certain business units, and in October it made a formal announcement of the steps of its turnaround process, which include: the sale of the Power division; establishing a holding company structure that will result in the two remaining subsidiaries, Industrial and Building & Facility, operating as independent entities; focusing on “core” activities within the remaining units; and the partial withdrawal from businesses generating approximately EUR 1 billion in revenues. At the same time, the company is lowering its headcount and SG&A costs and striving to improve cash conversion. These strategic and financial initiatives should make Bilfinger a more efficient organization. Increased focus in and greater independence of the Industrial and Building & Facility segments should allow for a gradual pickup in new orders and, eventually, revenues, as well as higher margins. Additionally, Bilfinger’s bloated cost structure should improve-with SG&A expenses as a percentage of revenue, in particular, being more than 400 basis points above similar companies. Even though the success of the proposed measures cannot be guaranteed, the involvement of a very successful and patient activist investor increases the odds of a successful turnaround.

One may note that Bilfinger’s current valuation already incorporates expectations for cost savings-while the company’s shares would be worth a lot less in the case where Bilfinger fails to deliver on its promises. This is true. Nonetheless, based on peer analysis, it appears that achieving a moderate level of cost reduction should be quite easy to achieve, especially when implemented by the company’s newly appointed Chairman and CEO. Bilfinger’s valuation leverage to SG&A savings is substantial. A gradual 200 basis point reduction in SG&A costs, as a percentage of sales, coupled with a reduction of capital expenditures to maintenance levels, has the potential to greatly lift free cash flow generation. In fact, due to Bilfinger’s numerous acquisitions since 2001, approximately a quarter of depreciation and amortization expense comprises goodwill amortization. Consequently, in the years to come, the German firm should generate free cash flow that exceeds reported net income by more than 20%.

To that end, and assuming Bilfinger’s transformation is complete by 2018, the company currently trades at 7.7x to 9.9x our estimated 2018 free cash flow. Were Bilfinger to trade at a normalized multiple, say, 15x, it would offer investors annualized returns exceeding 15% over a three year period. Therefore, given the involvement of Cevian Capital-which increases the chances of a successful turnaround-and a favorable risk-reward ratio offered by Bilfinger’s current valuation, the company’s shares are recommended for purchase.

· Nuance Communications, a leading provider of voice and language software solutions, reports four distinct operating segments: (1) Healthcare (47% of sales and 53% of segment profit in F2015); (2) Mobile & Consumer (23% and 18%); (3) Enterprise (18% and 15%); and (4) Imaging (12% and 14%).

· NUAN is a technology “roll-up” whose focus on a broad array of competencies, in terms of customers, industry verticals, and products, has led to inconsistent operating performance over the last few years. So, while results over the last several quarters have been encouraging, and we discern macro tailwinds in several aspects of the business, including healthcare and automotive, a rationalization of its portfolio could improve long-term execution, in terms of growth, innovation, margins, and/or capital allocation, creating incremental value beyond any potential re-rating. In terms of the latter, NUAN currently trades at ~14.5x and ~13.5x F2016E and F2017E EPS consensus, which we think reflects a conglomerate discount to the sum of its parts.

· While NUAN is up ~35% over the last year (versus a 7.5% rise in the NASDAQ), the stock is roughly flat over the last three years (versus a 72% gain in the NASDAQ) and well off its 2012 high of ~$30 per share. In April 2013, Carl Icahn filed a 13G disclosing a ~9% “passive” stake in NUAN. Subsequently, Mr. Icahn reclassified his stake under an “active” 13D, secured two Board seats, and increased his stake to 19.6%. While Mr. Icahn has not publicly voiced his aims for NUAN, it can be assumed that all options, both operational and transactional, would be considered in order to unlock value. Anecdotally, management, which collectively owns ~2.75% of NUAN, seems convinced that executing its operating plan is the correct long-term strategy.

· Considering peer multiples of earnings, respective per share values of ~$14, ~$5, ~$3, and ~$5 can be ascribed to NUAN’s Healthcare, Mobile, Enterprise, and Imaging segments, yielding a sum-of-the parts (SOTP) value of roughly $27 per share, implying roughly 30% of potential upside.

On November 12, 2015, Liberty Interactive Corporation (NASDAQ: QVCA, QVCB, LVNTA, LVNTB) announced that the company’s Board of Directors has approved the tax-free spin-off of two companies, CommerceHub Inc. and Liberty Expedia Holdings Inc. CommerceHub Inc. is to be comprised of the CommerceHub business, a software-as-a-service platform for online retailers and their suppliers. In the spin-off of CommerceHub, shareholders of Series A and Series B Liberty Ventures (LVNTA, LVNTB) common stock will receive shares of the corresponding series of CommerceHub, Inc. common stock for each share of Liberty Ventures common stock held. Expedia Holdings will be comprised of Liberty Interactive’s entire ownership interest in Expedia, Inc., as well as Liberty Interactive’s subsidiary Bodybuilding.com, LLC. In the spin-off of Expedia Holdings, record holders of Series A and Series B Liberty Ventures common stock will receive shares of the corresponding series of Expedia Holdings common stock for each share of the Liberty Ventures Group common stock held.

Expedia Holdings Series A and Series B common stock are expected to trade under the symbols LEXEA/B, respectively, and CommerceHub, Inc. Series A and Series B common stock are expected to trade under the symbols CHUBA/B, respectively, in each case, on the Nasdaq Stock Market. The transaction is subject to various conditions, including the receipt of an opinion of tax counsel, and is expected to be completed in the first half of 2016.

Following the spin-off, the Liberty Ventures Group will be comprised of all of Liberty Interactive’s businesses and assets other than those attributed to the QVC Group (QVCA,QVCB), including its subsidiaries Evite, Inc. and LMC Right Start, Inc., its interests in FTD Companies, Inc., Lending Tree, Inc., Interval Leisure Group, Inc., Time Warner Inc. and Time Warner Cable Inc., various green energy investments, the exchangeable senior debentures currently attributed to the Liberty Ventures Group and Liberty Interactive’s commitment to purchase $2.4 billion of Liberty Broadband Corporation’s Series C common stock in connection with the closing of the proposed merger of Charter Communications, Inc. and Time Warner Cable (subject to the exercise by Liberty Broadband of its right to reduce such commitment by up to 25%).

The Digital Ventures Group, which includes CommerceHub as well as the company’s other on-line commerce businesses (Backcountry.com, Inc., Bodybuilding.com, LLC Evite, Inc. (“”Evite””) and LMC Right Start, Inc.), generated $471 million in revenues in 2014. Accordingly, given limited disclosures to actual revenue and earnings of the CommerceHub, a post-spin valuation for the business is currently expected to result in a minimal market capitalization and will not be covered at this point in time, however maybe revisited at a future point.

A starting point for a post-spin valuation for Liberty Expedia Holdings can be based on the company’s current ownership position (23.6 million shares including Class A and B shares) at the current market price of $127.97 totals $3.0 billion, or $21.29 per share. The active trade business (ATB) being included in Liberty Expedia Holdings (Bodybuilding.com) provides minimal optionality.

Following the spin-off, the parent entity will maintain the ownership interest in Interval Leisure Group Inc. (NASDAQ: IILG) (16.6 million shares), Lending Tree Inc. (NASDAQ: TREE) (2.8 million shares), and FTD Companies Inc. (NASDAQ: FTD) (10.2 million shares), which in aggregate have a current market value of $841 million. The company’s ownership position in Time Warner Inc. (NYSE: TWX) and Time Warner Cable Inc. (NYSE: TWC) are valued at $1.3 billion. Accounting for $3.8 billion in cash and $2.2 billion in debt, a net asset value (NAV) of $3.8 billion, or $27 per share, is derived.

According to this preliminary valuation exercise, Liberty Ventures trades at a 10% discount to NAV. The discount is likely due to the fact that Liberty Ventures is actually a tracking stock, which generally trade with a discount. The decision to spin-off the EXPE ownership stake is likely driven by two key factors, one of which is an attempt to narrow the tracking discount. The other main reason to create Liberty Expedia Holdings is a that it creates a tax efficient way to monetize the long held EXPE stock, which is carried on the balance sheet at just $626 million (September 30, 2015). Given John Malone’s history of completing numerous successful spin transactions (with an aversion to paying taxes on holdings) in recent years (including Liberty Media / Starz) we would expect that the finalization of the Liberty Expedia Holdings transaction would narrow the current discount, with a high likelihood that Liberty Expedia Holdings eventually is merged back into EXPE down the road.