Visteon (“VC”) is a Tier 1 auto supplier with two distinct operating segments: (1) Climate Control, owned via a 70% stake in publicly traded Halla Visteon Climate Control (“HVCC”; ticker 018880 KS); and (2) Cockpit Electronics.

VC is in the latter stages of a multi-year transformation that has involved the divestiture of underperforming assets as well as acquisitions to bolster its more attractive businesses. Today, the company has a much more streamlined focus on its Electronics and Climate Control businesses, but with little operational overlap and industry trends seemingly pointing away from the conglomerate structure, VC could be evaluating a separation, via a spin-off or sale, of the two divisions. As standalone entities, VC’s businesses could become attractive acquisition targets with both strategic and financial suitors. (Based on the market value of HVCC, the implied multiple currently awarded the Electronics division is around 4.5x, a more than 40% discount to peers, suggesting adequate value is not being realized in the current corporate structure.)

Management’s public comments consistently affirm a commitment to the continual exploration of ways to unlock value for shareholders. Indeed, management’s actions since 2010 have demonstrated a willingness to pull multiple levers in that pursuit. As such, with the shares trading at an almost 25% discount to fair value, a separation transaction appears to be a logical avenue for management to explore on behalf of shareholders.

Considering peer group multiples and a mark-to-market valuation, one can ascribe an $81 per share value to the Climate segment and $56 per share to the Electronics division. Accounting for corporate/other costs of $11 per share as well as net debt and pension liabilities of $7 per share, a sum-of-the-parts valuation of $120 is derived.

NOTE: On the morning of publication, unconfirmed reports from South Korean media outlets reported that buyout firm Hahn & Co. was considering a purchase of Halla Visteon Climate Control Corp from Visteon Corp. In light of the unconfirmed nature of the reports we decided to publish the Hidden Opportunities report on Visteon Corp. given the fact that there remained significant upside to the current valuation on a sum-of-the-parts basis.

Occidental Petroleum Corp. (NYSE: OXY), based in Los Angeles, California, is an energy company operating in chemicals, midstream, and oil and gas. Primarily an oil producer (the fourth largest in the U.S.), the company also has interests in natural gas liquids (NGLs) and natural gas. U.S. operations are focused in the Permian Basin, where the company is the region’s largest oil producer, with a net share of approximately 16% of total production, and California, where OXY is the largest landholder. Internationally, production is located in the Middle East and South America. Occidental also has a chemicals segment, OxyChem. At year-end 2013, proved reserves totaled 3,487 MMboe (72% oil). OXY’s portfolio varies from that of most E&Ps in that it consists mostly of older, legacy assets already in production as opposed to new exploratory plays. The company is a leader in enhanced recovery, which includes advanced methods of increasing production from mature wells, such as carbon dioxide enhanced oil recovery (CO2 EOR), waterflooding and steamflooding, and hydraulic fracturing. OXY is one of the largest injectors of carbon dioxide for EOR in the U.S., with 60% of its current Permian production using this technique. At the same time, the company is accelerating investment in unconventional reservoirs, where stimulation techniques enable production from rocks with very little permeability, allowing the company to open up incremental plays in its existing Permian and California acreage.

OXY’s current restructuring can be viewed as one of the most significant transformations now occurring in the large-cap energy sector. Although OXY has more than doubled capital spending from 2010 to 2012, the company’s production, particularly in its unconventional U.S. acreage (California, Permian Basin, and Bakken Shale) has consistently lagged expectations. Despite delivering among the highest ROACE[1] and lowest net debt ratios among peers and the second highest dividend yield (double the peer average), OXY has underperformed the S&P 500 by approximately 60% and the energy group by approximately 25% since 2011. In particular, OXY’s California asset base has been a source of frustration, as a combination of complex geology, the state’s strict environmental scrutiny, and a slow permitting process has stymied growth. In response to shareholder activism in recent years, coupled with falling oil and gas prices, OXY has embarked on a “”shrink-to-grow”” strategy to find new accretive avenues for growth—building on a recent trend among large E&Ps such as ConocoPhillips (NYSE: COP), Hess Corporation (NYSE: HES), and Marathon Oil (NYSE: MRO), which have similarly divested non-core assets. Against this backdrop, in late 2013 management announced a plan to restructure and streamline its operations. On February 14, 2014, the company’s Board approved a plan to separate the California assets into an independent and separately traded company. In July 2014, a new management team was put in place for the California Resources Corporation (CRC) subsidiary, with plans to separate the business by the end of 2014. In recent months, OXY has been active in divesting non-core U.S. E&P assets, with a particular focus on selling a minority interest in its Middle East and North Africa (MENA) operations. Net-net, OXY’s goal is to become a smaller and more focused (and profitable) Permian Basin company with reduced political risk.

The spin-off company, California Resources (expected to list on the NYSE under the symbol “”CRC””), is considered the state’s largest oil and gas producer on a gross-operated barrels of oil equivalent (boe) basis as well as the largest land holder, at 2.3 million net acres. The company has a particular focus on the Monterey shale, a vast rock formation in central California spanning much of the state and estimated to hold two-thirds of the nation’s potential shale oil reserves. Over the past five years, the company has drilled over 570 unconventional development wells in the state (by far the most of any company). However, a combination of complex geology, regulatory scrutiny, and the limited success of unconventional drilling techniques has stymied production, dampening expectations for a resource once thought to rival other U.S. shale deposits and putting into question its long-term feasibility. While CRC targets production growth at a 7.5% compound annual rate through 2016 (190,000 boe per day, up from 154,000 boe per day in 2013), there is an understandable degree of skepticism among industry observers given the company’s recent history of disappointing results.

This planned spin-off transaction is unusual in that historically, most oil and gas transactions have involved separating different parts of the value chain (e.g., upstream and downstream), owing to divergent market dynamics, growth rates, and profitability. In this context, the benefits of creating a California-only oil and gas company are somewhat opaque. A more logical rationale for the spin-off may be based in OXY’s historical underinvestment (and that of the rest of the industry) in California exploration relative to other prolific U.S. basins—the result of the region’s unique regulatory and technical risks. From an operational perspective, CRC should benefit from a dedicated management team that can focus exclusively on the business given its specific challenges and requisite specialized expertise. Whereas historically OXY has reinvested California’s free cash flow elsewhere in its E&P portfolio toward higher returns, an independent CRC will invest most of its operating cash flow toward growing future production, while balancing growth versus returns longer term. CRC could also potentially benefit from further developing its unconventional assets.

Following the spin-off, OXY will maintain its exploration and production operations in the Permian Basin and other parts of Texas, in the Middle East, and in Colombia. The company will also retain its midstream and marketing segment and its chemical subsidiary, OxyChem. The company will distribute 80.1% of the equity of CRC to OXY shareholders (distribution date of November 30, 2014), and will retain the remaining 19.9% of the equity for up to 18 months, during which time it will conduct an exchange offer for OXY shares (any remaining equity at the end of this holding period will be distributed to shareholders). For OXY, the spin-off, coupled with the ongoing sale of non-core assets and reduced exposure in MENA, should bring into focus the company’s position as one of the largest Permian players, complemented by its midstream and chemicals assets.

Despite the obvious strategic benefits of OXY’s asset divestitures and ongoing restructuring, a combination of industry and company-specific concerns is likely to generate considerable volatility for the shares in the near term. From a macro perspective, the downward trajectory of crude prices has pressured shares of oil-focused producers in recent months. Moreover, execution risk for OXY remains high, as the company balances a restructuring of this magnitude while executing a major unconventional drilling program. In particular, there is considerable skepticism over whether OXY can deliver operationally in the Permian to achieve its targeted production of 270 Mboed (thousand barrels of oil equivalent per day) by 2016 (a 27% increase from 2013 levels), given a track record of disappointing growth over the past several years. Visibility into the timing of the company’s complicated MENA sell-down (and other asset disposals) also appears elusive.

The upside case, given OXY’s history of underperformance, is that the company could begin to deliver operationally in the Permian Basin (ramping up unconventional production), execute incremental asset sales, and return excess cash to shareholders—potentially rendering the shares a more defensive play in a lower oil price environment. A robust balance sheet (no debt, and cash bolstered by an incremental $6.2 billion from CRC), healthy dividend yield (at about 3.0%, the second highest yield of an E&P company, and above the S&P 500 average of 2.0%), and an aggressive share repurchase program (funded by the spin-off and monetization of assets) would support a more positive long-term view. In particular, share repurchase and dividend growth are incremental areas for value creation that could mitigate volatility in the stock price and partially offset operational and industry risks, particularly in the event of a continued oil price decline. A back-of-the-envelope calculation would suggest that OXY could have over $15 billion of surplus cash– including the CRC dividend ($6.2 billion), the MENA equity sell-down ($6.5 billion), and the sale of its 10% interest in Plains All-American Pipeline (NYSE: PGAP), which would net approximately $3.5 billion after tax. Repurchases could represent approximately 13% of the company’s current market capitalization (and potentially over 13% of the company’s post-spin market capitalization), assuming OXY repurchases approximately $7.9 billion (100 million shares) of its shares, as projected. Assuming this is spread evenly over a three-year period, the combined cash returns to shareholders will be 8% annually, potentially one of the highest cash returns to shareholders in the large-cap oil and gas sector.

CRC, as a pure-play California oil growth story, is likely to face similar valuation headwinds in the current market. Given the parent company’s history of disappointments, investors will likely want tangible proof that CRC can deliver on production targets. The company’s debt burden may also pressure the valuation. Moreover, OXY’s more defensive investment profile (more proven production relative to peers, and increasing dividends and share buybacks), contrasts sharply with that of CRC.

Based on an analysis of proved reserves, production, projected EBITDA and pre-interest cash flow, and discounted future net cash flows for both entities, one can arrive at post-spin fair value estimates of $79 for OXY and $19 for CRC (based on a 0.4994:1 distribution ratio). On a pre-spin basis, OXY stock can be valued at $86 per share, consisting of $77 per share of OXY (post-spin value less 19.9% ownership in CRC) and $9 per share of CRC. While the spin-off of a problematic asset, coupled with incremental restructuring and an improved balance sheet, should generate more confidence in OXY’s core Permian asset base, the shares do not yet offer enough potential price appreciation to warrant a purchase recommendation at this time—particularly in an uncertain environment for oil pricing and given specific operational risks. That said, the lack of immediate upside should not be surprising considering this is not a value-unlocking transaction but a key step in the parent company’s ongoing restructuring process.

Con-way is a diversified transportation provider operating three distinct business segments: (1) Less-than-Truckload (LTL); (2) Truckload (TL); and (3) Logistics (Menlo).

While industry fundamentals will likely be supportive of improving results over the next few years, and internal initiatives appear to be gaining traction, CNW could consider separating, via a spin-off or sale, its three businesses for several reasons. First, CNW is awarded a valuation multiple based on its largest segment, LTL, which has underperformed peers over the last several years and is historically awarded a valuation multiple that lags both TL and Logistics comparables. Second, the initial strategic rationale for the current conglomerate structure has largely been abandoned. Third, as standalone entities the TL and Logistics businesses could be attractive acquisition targets with willing buyers, given the ongoing consolidation of those markets.

Over the last 1-, 3- and 5-year periods, CNW’s stock has underperformed virtually all of its LTL, TL, and Logistics peers; consequently, the company could see increased shareholder pressure to create value. That said, public commentary suggests that while CNW annually evaluates its strategic options and is generally open to all value-creating measures, in the absence of any significant pressure from shareholders, its near-term focus will likely remain on improving underlying operations.

Considering peer group and acquisition multiples, we value the LTL segment at $40 per share, the TL segment at $13 per share, and the Logistics segment, Menlo, at $12 per share. Accounting for incremental corporate costs, other income, and net debt of $8 per share, a sum-of-the-parts valuation of $57 is derived.

Future potential catalysts include a separation or sale of one of CNW’s three businesses, improving industry fundamentals, better internal execution, and/or share repurchases. Potential risks include management inaction or lack of execution, pricing irrationality, and/or a recession.

DREAM Unlimited’s profitability has declined since it was spun off from Dundee, and the price of the stock followed suit. However, Dream is currently undergoing a transformation, devoting more resources towards its homebuilding division. Why is that important? Because an increasing number of lots is used internally, thereby deferring revenues until the construction of single and multi-family real estate is complete—a process that can last longer than a year. While the short-term profitability is reduced, net income is expected to rebound once significant projects come online, and the company’s management expects 2016 to be the year that the transformation is completed.

Yet investors currently have the opportunity to purchase shares of Dream at a reasonable P/E ratio, 16.3x, that does not appear to incorporate the probability of significantly higher earnings in the next two years.

Irrespective of short term profit volatility, most of Dream’s value lies within its balance sheet and, more specifically, its land bank. The company owns significant acreage that can be developed into more than 40 thousand lots—decades’ long of supply at the current sales pace. The implications of the significant land ownership are twofold: Firstly, the company can more easily control the pace of its sales—housing inventory has significant maintenance costs so it has to be sold fast, while land sales can be postponed. Secondly, Dream has enough land to construct its own real estate for decades. Thus, unlike other homebuilders, it does not have to constantly replenish its land bank to stay in business. That practice allows for minimal cash generation at other competitors, a problem that Dream does not face.

Moreover, Dream’s raw land holdings, recorded on its balance sheet at CAD 374 million, are worth multiples of that amount. Based on recent sales prices and gross margins, the 8.3 thousand acres of undeveloped land could generate approximately CAD 5,760 million in revenues and CAD 2,290 million in gross profit, a noteworthy fact given that Dream’s enterprise value is below CAD 1,470 million.

The asset management division, with almost CAD 15 billion in assets, is another source of value that is not depicted on Dream’s balance sheet. During the second quarter of 2014, the company generated CAD 7.5 million in fees, of which CAD 7 million comprised base fees that are of a recurring nature. Additionally, asset management is a very profitable business, generating gross margins between 60% and 70.

With land holdings worth a significant premium to book value and an extremely profitable and growing asset management division, DREAM Unlimited represents uncommon value, and its shares are consequently recommended for purchase. The company’s stock is valued between CAD 15.9 and CAD 23.9. The current stock price also allows for a significant margin of safety—permitting the purchase of the company’s assets at a discount while getting the asset management business for free and retaining the optionality of improved profitability when the transformation of the company is completed.

On July 31, 2014, Cash America International Inc. (NYSE: CSH) filed a Form 10 with the SEC formalizing the company’s plans to spin off its online consumer lending business, Enova International Inc. The filing followed the April 2014 disclosure that CSH was reviewing a potential spin-off of the online-focused business, and a failed attempt to take Enova public in July 2012. Cash America will distribute 80% of Enova International’s common stock via a tax-free distribution on November 13, 2014, to CSH shareholders of record as of November 3, 2014. Shares of Enova will begin regular-way trading on the NYSE on November 13, 2014, under the symbol “”ENVA””. CSH shareholders of record will receive 0.915 shares of ENVA for every share of CSH owned. David A. Fisher, currently the CEO of the online business, will carry on his role at Enova following the spin-off. CSH plans to sell the 20% ENVA stake as soon as reasonably feasible.

Cash America is the largest pawnshop operator and pawn loan provider in the world, with approximately 950 locations in the U.S., U.K., and Australia. In addition to the pawn operations, the company entered into the online unsecured lending business in 2006 via acquisition, a strategy that Cash America has used throughout its history to facilitate growth in what is typically a fairly stable pawn industry. The primary services offered by CSH are pawn lending, consumer lending, and ancillary financial services, including check cashing and consumer loans. Pawn lending and disposition of pawned items account for a large percentage of the company’s revenue; however, the lending business, both at retail locations and online, has grown to become roughly 50% of Cash America’s business.

Consumer loans take the form of unsecured short term borrowings, often referred to as payday loans, and unsecured medium term installment loans. CSH customers lack access to traditional sources of credit, allowing for extraordinarily high annualized interest rates and fees to be charged. For example a payday loan’s annualized rate of return could easily exceed 300%, when fees are included. Similarly, pawn loans can also achieve over 100% rate of return depending on length of pawn and the ultimate repayment or disposition price of pawned merchandise. There is a counterbalance to the high rates, which is a much higher rate of loan loss; the CSH rate is recently below 20%. Unlike a traditional bank, though, these companies do not employ much leverage; the CSH debt to equity ratio is 62% in its current corporate structure. This different mix of interest rate, charge-off experience and leverage ratios produces, among CSH and comparable companies, a return-on-assets level of profitability in the 5% to 12% range, whereas a traditional bank like Wells Fargo will have an ROA in the 1-2% range, with a leverage-inflated ROE in the 12% range.

The separation of the E-Commerce segment into Enova appears to make sense in terms of the goal of splitting the faster-growth and higher-margin online business from the steady, cash-flow-focused pawnshop business. However, the largest benefit to CSH is a clearer separation of risk profiles between the retail operations, centered in North America, and the much newer online lending business, which has exposure to various international markets. The online lending business is currently exposed to significant legislative/regulatory risks that could restrict business practices in the near future. In the UK Enova has already begun to operate under rule changes that are expected to reduce loan volumes, as that country has implemented affordability reviews and limits on lending and fee collection. The ultimate impact on Enova’s business is still unclear with respect to the magnitude of loan and revenue declines, as evidenced by the wide range of management’s guidance for the company’s performance in 2015. The uncertainty surrounding Enova’s ability to operate and charge high fees to subprime borrowers will likely result in a depressed valuation until clarity is resolved on the regulation front in the US and regarding the impact on UK operations.

The post-spin parent company will retain its retail pawn store business, where ancillary services are offered at some locales, and will continue a growth-by-acquisition strategy. The pawnshop industry is highly fragmented, with significant number of operators operating a small number of shops, presenting opportunities for CSH’s management to acquire competing pawn shops in attractive markets. Earnings at store-level retail operations have declined in recent years due to the economic weakness following the 2008/2009 financial crisis and as the fall in the price of gold has affected the company’s ability to dispose of jewelry at higher prices. As gold price declines appear to have at least halted following the experience through most of 2014 year to date, and with the company coming up on the anniversary of its switch of practice from selling gold for scrap to selling refined pieces at retail outlets, store-level earnings should see a higher degree of stabilization.

Based on relative comparable-company valuations and forecast 2015 earnings, post-spin fair value estimates of $15 per share of CSH and $32 per share for ENVA can be derived. On a pre-spin basis, CSH stock can be valued at $43 per share, consisting of $14 per share of CSH (post-spin value less 20% ownership in ENVA) and $29 per share of ENVA (accounting for the share distribution ratio). Given the regulatory risks associated with both companies following the separation, the shares are not recommended for purchase at this time. If ENVA’s business can weather the UK regulation changes and potential implementation of US regulations, it may be able to operate a highly profitable online lending business. However, the regulatory risks would have to be clarified before the shares are reevaluated for recommendation. The pawn-based business is exposed to less risk, and will grow at a slower pace than the online business. Investors interested in the retail-based business could consider initiating positions at around $12 per share.

On April 29, 2014, Alliant Techsystems, Inc. (NYSE: ATK) announced plans to separate its aerospace and defense businesses from its outdoor sports business, Vista Outdoor, via a tax-free spin-off of Vista to ATK shareholders. Immediately following the transaction, ATK will merge its standalone aerospace and defense segments with Orbital Sciences Corporation (NYSE: ORB) in a tax-free Morris Trust transaction. The new entity will adopt the moniker Orbital ATK and is to be listed on the NYSE under the ticker “”OA””. Current ATK shareholders will own approximately 53.8% of the newly merged company, with Orbital shareholders owning the remaining 46.2%. ATK shares will be distributed to Orbital shareholders on a fixed exchange ratio of 0.449:1. Orbital ATK expects to retain roughly $1.7 billion of existing debt following about a $350 million cash distribution from the spin entity, Vista. Mark DeYoung, the current CEO of ATK, will become the CEO of Vista Outdoor, while David Thompson, the current CEO of Orbital, will lead the combined Orbital ATK. ATK’s current Chairman, General Ronald Fogleman, will serve as Chairman of Orbital ATK. The transaction was initially expected to close before the end of 2014, but management comments on Orbital’s most recent earnings call suggested that the need to await receipt of regulatory approval may push the timing out to January 2015.

Beyond the standard stated rationale for such transactions, including improved strategic clarity, management focus, and capital allocation, the proposed deal broadly aims to separate ATK’s fast-growing sporting unit (i.e., deserving of a higher valuation multiple than the parent company) from its slower-growing aerospace business and contracting defense unit, which has been hurt in part by declining ammunition sales to the military and budget sequestration, while simultaneously merging it with a higher-growth but smaller peer that has attractive exposure to the commercial satellite, launch vehicle, and missile defense markets.

Vista Outdoor, on a standalone basis, will be a leading producer of ammunition and outdoor sporting accessories, such as binoculars, holsters, and other accessories for hunters and members of law enforcement. With its preferred brands, such as Federal Premium and Speer, and given the growing popularity of sport shooting and hunting amid increased fears of regulation, the company’s core ammunition business has posted mid-teens revenue growth as well as an expanding margin profile over the last few years. Moreover, the company has bolstered its firearms and outdoor sports accessories businesses via the acquisitions of Bushnell in November 2013 and Caliber Company, the maker of Savage Arms, in 2011. Pro forma for the 12 months ended December 2013, Vista generated $2.2 billion in revenue and $361 million of EBITDA. While management continues to expect mid- to-high-single-digit revenue growth, excluding acquisitions, for F2015, there is concern that operating margins, which on a pro forma basis stood at 13.2% in the most recent June quarter, are approaching a cyclical peak and could see modest downward pressure. Based on expected trends, peer multiples of earnings, and a leveraged buyout (LBO) analysis, a post-spin fair value estimate of $70 can be derived.

The merger of ATK and Orbital appears strategically sound, as both are well positioned in their respective markets, and the product overlap of the companies, which have partnered on dozens of projects over the last 25 years, is de minimis. Indeed, the combination will offer vertical integration opportunities between ATK’s propulsion and satellite component offerings and Orbital’s launch vehicle and satellite systems. Broadly, the new Orbital ATK will have an industry leading position in the space and aeronautics markets (60% of revenue) as well as the non-space defense sector (40% of revenue). Per company filings, the combined company generated $4.5 billion of sales, $435 million of EBIT (~10% margin), EBITDA of $585 million, and EPS of about $4.00 in the calendar year 2013. As well, management has articulated three-year targets for compound annual revenue and EPS growth of 4%-5% and 12%-15%, respectively, as well as cumulative free cash flow of at least $1 billion. (Note: included in guidance is $150-$200 million of annual revenue synergies as well as $70-$100 million of annual cost synergies to be realized by the end of 2016.) Based on peer multiples of earnings, and cash flow as well as asset value, a post-merger fair value of $74 can be derived.

Based on the projected market capitalization of Vista Outdoor and the expected 53.8% interest ATK shareholders will have in post-merger Orbital ATK, the implied pre-spin fair value for current ATK shares is about $146 per share (versus the current price of $127.62). Based on the expected 46.2% interest that ORB shareholders will have in Orbital ATK, the implied pre-merger fair value of current ORB shares is about $34 (versus the current share price of $29.51). As such, it appears investors could consider pre-transaction investments in either stock, but given the slightly greater aggregate potential implied upside in shares of Orbital Sciences Corp., it may be the more appealing option.

Post-spin, the standalone Vista entity, which, based on ORB’s current share price of $29.51 and the fixed 0.449 exchange ratio, is implicitly trading at around $62 per share, could experience a degree of initial selling pressure as the shareholder base turns over and investors grapple with concerns that ammunition earnings are peaking. That said, a sell-off would likely present an attractive longer-term buying opportunity, assuming the company can come even close to achieving the double-digit top- and bottom-line growth, including both internal and acquisitive expansion, anecdotally targeted by management. In that context, the outlook for M&A at Vista looks particularly attractive given the underlying fragmentation of its markets and the company’s expected financial flexibility.

On May 8, 2014, Liberty Media Corp. (NASDAQ: LMCA, LMCK; OTC: LMCB) (“LMCA”) announced that the company would spin off shares of Liberty Broadband, which will include Liberty Media’s holdings in Charter Communications Inc. (NASDAQ: CHTR), along with wholly owned subsidiary TruePosition, a minority ownership position in Time Warner Cable Inc. (NYSE: TWC), and liabilities related to deferred taxes and revenue. Post-separation, Liberty Media will primarily consist of the company’s holdings in Sirius XM Holdings Inc. (NASDAQ: SIRI), along with smaller public holdings.

Shares of Liberty Broadband Corp. will be distributed on November 4, 2014, to shareholders of record on October 29, 2014. Liberty Media shareholders will receive one share of Broadband for every four shares owned of the respective Liberty Media class. Class A and C shares of Liberty Broadband (“Broadband”) will trade on the NASDAQ under the symbols “LBRDA” and “LBRDK”, respectively; Class B shares will trade OTC under the symbol “LBRDB” beginning November 5, 2014.

Following the common stock distribution, Broadband shareholders will receive one subscription right to acquire one share of Series C common for every five shares of each class of Broadband stock owned. The subscription right will be priced at a 20% discount to the initial 20-trading-day volume-weighted average. The distribution date for the rights offering is December 10, 2014, with a record date of November 19, 2014.

Based on the current discount of 11% at which LMCA shares trade compared to the estimated net asset value (NAV) of LMCA’s public and private holdings, the shares are recommended for purchase prior to the spin-off of Liberty Broadband. The spin-off transaction should prove to be a value-creating catalyst, as creating two separate companies, each of which is essentially a pure play on one holding (SIRI for LMCA and CHTR for LBRDA), will reduce the current conglomerate discount. A pre-spin fair value estimate for shares of LMCA of $52 is derived via the calculated NAV.

Liberty Broadband becomes a pure play on the consolidation of the cable industry. The mega merger between Comcast Corp. (NASDAQ: CMCSA) and Time Warner Cable Inc. shows industry willingness to consolidate in an effort to leverage power over rising content costs and competition from over-the-top (i.e., internet-based) services that could be considered a disruptive technology to the cable providers. CHTR appears to be an attractive industry consolidator given that the current subscriber count is well below the maximum allowed by law. Liberty Broadband looks to have ample liquidity, care of availability on its revolving line of credit, cash to be raised in the rights offering, and modest debt levels, to acquire a larger stake in CHTR and exert a greater influence on the strategic direction of the company. Shares of LBRDA can be valued at $51 per share based on the current market prices of CHTR and TWC following the rights offering.

It should be noted that the Broadband valuation ascribes minimal value to the wholly owned subsidiary of TruePosition. TruePosition’s location-based services and proprietary technology may benefit from recent legislative changes. However, the ultimate potential scale of the benefit to TruePosition is unknown at this point. It does not appear that much, if any, value is currently being ascribed to the business within LMCA. Upon separation, with CHTR held by LBRDA, it is unlikely to garner much value either, and could be considered optionality. However, TruePosition could prove to be a valuable asset to shareholders in the future.

Liberty Media’s valuation will primarily consist of Sirius XM’s value. SIRI has a large and growing customer base and a significant installed base of receivers that present a major hurdle for new market entrants that might attempt to take share. The company is now profitable and has turned into a major free cash flow generator that has the ability to repurchase large amounts of equity. At this point, LMCA is not selling into the repurchases. If repurchases continue, LMCA’s proportional ownership will increase as the shares not owned by Liberty are retired (i.e., no additional capital is needed to increase ownership). Further, business fundamentals appear strong despite competition from internet-based music services, since 70% of new cars come equipped to receive the service, and the total cars number of cars that will be SIRI enabled is expected to total 120 million in the next few years. Not to be overlooked, LMCA’s ownership of Live Nation Entertainment Inc. (NYSE: LYV), which also generates sizeable cash flow and presents optionality to investors based on the future monetization of video content. Initial post-spin trading for LMCA should approximate $38 per share based on the current market value of LMCA’s holdings. Growth from the underlying businesses provides ample upside of approximately 16% from the initial trading values based on the valuation of SIRI. As such, shares would be recommended at the $36 level based on the thesis that the SIRI share price will appreciate in the future.

On April 11, 2014, Vornado Realty Trust (NYSE: VNO), a commercial property real estate investment trust (REIT), announced plans to spin off its shopping center operations through a tax-free distribution of shares to VNO shareholders. The spin entity, which will be structured as a REIT, will consist of 81 strip centers and 4 malls. Following the separation, VNO’s portfolio will largely consist of office properties and street level retail space in New York and Washington, D.C.

Jeffrey Olson, currently CEO of shopping center REIT Equity ONE Inc. (NYSE: EQY), will become Chairman and CEO of the yet-to-be-named spin entity. Steven Roth, Chairman and CEO of VNO, will also serve on the spin entity’s board. The transaction is expected to be completed in 4Q 2014, pending an effectiveness declaration of the company’s Form 10 filing, approval for listing of the spin entity by a major exchange, and final Board approval. VNO expects that its current $2.92 per share annual dividend will be maintained through a combination of the post-spin dividends of the two post-spin entities. The spin entity’s portfolio of 85 retail properties totals approximately 16.1 million square feet, with an average occupancy of 95.5% as of year-end 2013.

The spin-off of the regional strip centers is a large step in management’s two-year-old plan to reduce the complexity of Vornado’s operations. The transaction is structured to separate relatively lower-return assets (strip centers) from the premier assets (Manhattan/Washington, DC) held by the parent company. In turn, three goals can be accomplished. First, the parent company’s operating and growth statistics will likely immediately improve, which should result in a higher valuation multiple, all else equal. Second, the spin entity appears to be unduely discounted within the current corporate structure. As a standalone company, SpinCo will almost certainly be rerated at a higher valuation than is implied within the current share price, which could converge towards peer-group pricing. Third, , the spin entity has the opportunity to make investments in assets that likely would not have been made within the context of the larger corporate structure. The spin assets are not necessarily poor assets; however, they exhibit lower operating metrics such as sales per square foot. This means that Vornado’s investment decisions favor the premier properties, which typically generate a higher rate of return over time. As a result, Vornado’s funds are more routinely invested in larger properties, thus creating a self-fulfilling prophecy whereby the lower-return assets are underinvested in over time and become perpetual portfolio laggards. With a separate capital structure, investments and/or acquisitions can be made that will benefit the standalone spin entity.

SpinCo should be able to capitalize on a strengthening American consumer to maintain occupancy, while $100 million of reinvestment opportunities have been identified that could help increase average rents charged. Over the past two years management has been effective in increasing base rates upon lease renewals. Further, low debt costs and attractive strip center asset pricing should allow selective accretive acquisitions to be made in growing the portfolio.

Post-spin Vornado appears well positioned in the Manhattan market to capitalize on current low vacancy rates and a constraint on new supply due to various factors, including zoning regulations and a lack of available buildable real estate. The constrained supply will likely allow continued increases in rent, approximating the rate of recent years. The street level retail properties in New York should benefit from the same market characteristics. Of particular interest may be VNO’s ownership of the Hotel Pennsylvania, located in the western portion of Manhattan’s Midtown directly across the street from Penn Station. The property contains a hotel, commercial office space and street level retail. The hotel charges rates that are reasonable for the location and has improved occupancy in recent years: however the office space and retail portions lag the broader New York portfolio. Western midtown is one of the last remaining portions of Manhattan that has yet to be fully redeveloped. Upon completion of a redeveloped trade area, the Hotel Pennsylvania could prove to be a highly valuable asset, one whose value appreciation could be very significant and that today understates the potential cash flow of the New York segment.

The Washington, DC market will likely prove more challenging; however, it has the potential to rebound from steep declines in office space occupancy resulting from US government-related base closures and realignment.

Pre-spin VNO shares trade at a slight discount to other premier office property REITs, likely due to the complexity of the business model, which includes investments in other companies such as Toys “R” Us and the incorporation of the strip center business. Strip centers trade at a sizable discount to peers. Applying price to funds from operations (FFO) comparable multiples, estimated cap rates, and estimated dividend yield analysis to SpinCo and post-spin VNO, a pre-spin sum-of-the-parts valuation of $114 per share can be derived. The pre-spin valuation comprises $101 per share of post-spin VNO and $13 per share of SpinCo ($26 on a post-spin basis, accounting for the planned 1-for-2 share distribution).

Given that Vornado shares currently trade at just under $105 per share, the market is ascribing only $4 per share to the strip center business. Upon separation it could be expected that SpinCo will be revalued, resulting in the unlocking of approximately 10% in value, in our view.

Cosan SA Indústria e Comércio (“Cosan” or “Cosan SA”) is one of Brazil’s largest corporations, with interests in businesses operating in the infrastructure and energy sectors. Cosan operates under a holding company structure. Its main wholly or partially owned subsidiaries and joint ventures include Raízen Combustíveis, Raízen Energia, Comgás (CGAS3 BZ), Rumo, Radar and Cosan Lubrificantes. The company was created when its Chairman, Rubens Ometto Silveira Mello, consolidated his family’s sugar mills. It has expanded rapidly, particularly since 2000, and has partnered with major oil corporations, such as Royal Dutch Shell Plc (RDSA LN).

On February 24, Cosan announced its intention to spin off its interest in its logistics subsidiary, Rumo, through a distribution in specie of Cosan Logística. The new entity will own a 75% stake in Rumo, with the remainder held by Cosan’s current partners, TPG and Gávea Investimentos. Existing shareholders will receive one share of Cosan Logística for each share of Cosan SA they own. The spin-off was approved by shareholders on October 1, 2014. The day after the decision, shares of Cosan SA Indústria e Comércio will trade ex-distribution, while at the same day Cosan Logística shares will start trading under the ticker “RLOG3”.

The demerger will essentially lead to the separation of Cosan’s energy and infrastructure businesses. Due to the fact that Rumo is a logistics company, and therefore a user rather than a provider of railroad infrastructure, its results tend to be more volatile compared to the parent corporation. Furthermore, Rumo has reached a critical size that now allows it to operate effectively as a standalone entity, and will be able to proceed with an all-stock merger with ALL-América Latina Logística SA (ALL3 BZ).

Rumo is 75% owned by Cosan SA. Thus, Cosan Logística, the entity existing shareholders will receive, will inherit that stake. The company specializes in the transportation of sugar, using road and rail transportation networks as well as its warehouses to move the commodity from sugar mills to the port of Santos where clients, such as commodity traders, take delivery for export. Given that Brazil is considered an emerging market, combined with Rumo’s relationship with Cosan’s sugar operations, it appears that the company is poised to expand rapidly. The offer for ALL, which currently grants rights to Rumo to operate in its rail network, appears to reinforce that perception.

On the other hand, the transportation of agricultural commodities is volatile, as shipments are affected by the quantity harvested. The transportation of sugars is additionally affected by the price and demand for ethanol, which can shift the sugarcane refining mix away from sugar. Combined with the uncertainty of the ALL merger, one should be cautious with the valuation of Cosan Logística, as it may initially be skewed upwards in anticipation of the transaction. A fair value appears to be BRL 4 per share, with a high case of BRL 4.3 per share and a low case of BRL 3.2 per share. Taking into account the aforementioned causes of concern, shares of Cosan Logística are recommended for purchase at a price below the low end of the valuation range.

Following the spin-off, Cosan SA will focus primarily on energy production and distribution as well as sugar refining. Its structure will remain complex; it will operate through five main subsidiaries, of which two are classified as joint ventures, one of which is publically traded, and various other businesses. Currently Cosan consolidates the results of Cosan Lubrificantes, Comgás and Radar. On the other hand, Raízen Energia and Raízen Combustíveis are deconsolidated entities, with neither their EBITDA nor debt included in Cosan’s income statement and balance sheet, respectively. It is clear though that most of Cosan’s value is derived from its two joint ventures.

Cosan SA will also continue to be responsible for the bulk of Mr. Ometto’s net worth. It has grown substantially, with many of its subsidiaries created in the last decade. Moreover, it appears to be a credible partner of large integrated oil and gas majors. Its Cosan Lubrificantes wholly-owned subsidiary produces and markets lubricants under the Mobil brand in Brazil, while Raízen Energia’s and Raízen Combustíveis’ joint venture partner is Shell. In fact, the British oil major is considering swapping its stake in these two business with shares of the parent company, Cosan. By valuing each business separately, one arrives at a valuation of BRL 43.8 per share. An appropriate valuation range is between BRL 38 and BRL 49.6 per share. Cosan’s owner-operated characteristics and its partnership with reputable foreign firms instills a greater degree of confidence that the company could trade at the higher end of the valuation range in the future.

On January 20, 2014, Kimball International Inc. (NYSE: KBALB, OTC: KBALA) announced plans to spin off its Electronic Manufacturing Services segment into a standalone company called Kimball Electronics. KBALB will retain its furniture manufacturing operations under the name Kimball International. Shareholders of record will receive three shares of KE for every four shares of KBALB owned. Upon completion of the transaction, current CEO James C. Thyen will retire. Kimball Electronics Group President Donald D. Charron will serve as CEO of Kimball Electronics, while Robert Schneider, KBALB’s current CFO, will assume the CEO role at Kimball International. The separation still requires legal opinion in relation to the tax-free status of the spin-off, an effectiveness declaration of SEC filings, and final approval from the Board of Directors. The transaction is expected to be completed sometime in the fourth quarter of the calendar year.

As part of the transaction, Kimball intends to combine its current dual class structure into a single class of shares. As of August 2014, there were 7.7 million Class A shares and 30.7 million Class B shares outstanding. Class A shares elect all but one director, while Class B shares have a small dividend preference. Class A shares are fully convertible to Class B shares on a 1:1 basis. Once Class A shares account for less than 15% of shares outstanding, the dual class structure is eliminated. The transaction is pending conversion of additional A shares.

Kimball’s Electronics Manufacturing Services group (EMS), which represents approximately $700 million in annualized revenue (58% of total sales), and which is growing approximately 5% annually, provides electronics manufacturing assemblies in the medical, industrial, automotive, and public safety markets. Revenue growth in this business has been extremely volatile – ranging from a ten-year high of 14% year-over-year growth in F2013 to a 15% decline in F2012 – largely the result of demand fluctuations and the effects of customer concentration. The company is uniquely positioned, both as a mid-sized EMS player in a heavily consolidated industry dominated by a handful of global competitors and by its strategic focus on emerging markets. More recently, this business can be viewed as a play on the rapidly growing demand for automobiles as well as the increasing requirement for automotive intelligence, with the company benefiting from growth in the U.S. and China.

Kimball’s furniture segment, which focuses exclusively on the office and hospitality markets, represents approximately $540 million in annualized revenue (42% of total sales). This business is similar to the durable goods industries from a demand perspective, with performance directly tied to the broader economy and employment trends. Revenue growth has been similarly volatile – ranging from a precipitous 10-year 27% decline in F2010 and subsequent high of 16% year-over-year in F2011. Revenue has remained essentially flat over the past four years as the market for U.S. office construction and occupancy remains in recovery, with industry growth still lagging historical norms in a post-bubble era.

Looking into F2015, the outlook appears generally stable for both businesses, with year-over-year revenue growth estimated at 6% for the combined entities. Estimated F2015 consolidated revenue growth of 6% (based on current Bloomberg consensus) is slightly below the 8% experienced in F2014. Profitability, however, varies widely; the 6% EBITDA margin for EMS trends in line with industry peers, while the furniture segment’s 4% EBITDA margin lags comparables, likely due to cost inefficiencies associated with a reduced footprint. Both businesses are capital intensive and subject to relatively high fixed costs, increasing commodity and materials pricing, and competitive pricing pressure, all of which may limit long-term profitability. These operational headwinds have necessitated expansion and optimization of manufacturing, sales, and distribution assets in lower-cost geographic areas (consistent with industry competitors) and are exacerbated by Kimball’s position as a relatively small player in each of its respective industries. As a result, the spin-off may give each entity the flexibility to leverage its balance sheet to achieve greater scale and potentially expand earnings leverage.

Clearly these are two very disparate businesses and, historically, Kimball has struggled with execution, as the relative underperformance and outperformance of either segment has resulted in a metaphorical two-legged stool situation, weighing on the company’s blended revenue and earnings growth. This unusual composition – coupled with a dual-class equity structure – has weighed on valuation, with both segments historically underperforming peers. Accordingly, a separation would afford investors a choice, and may eliminate the ‘conglomerate discount,’ while providing each company with the ability to invest appropriately for growth.

Kimball shares can be said to have exhibited many characteristics sought by value-oriented investors, including a strong balance sheet with negligible debt, an attractive dividend yield ($0.20/share, or 1.27%), and, historically, a reasonable relative valuation. At the end of F2013, KBALB shares traded at approximately a 7% discount to tangible book value (TBV) of $10.42. Despite trading at a meaningful discount to historical multiples, KBALB shares have appreciated approximately 18% since January 2013 and currently trade at a premium of approximately 30% to TBV of $11.31 (book value has remained essentially flat for the past ten years), implying that upside from the current price of the combined entities may be limited. On a price-to-earnings basis, KBALB shares trade at 16x estimated F2015 EPS (based on Bloomberg consensus estimates), a premium to both furniture and EMS peers (which trade at 15x and 13x, respectively), which may be unwarranted given the company’s reduced profitability relative to peers.

For post-spin Kimball International (“”KBAL””), it appears that investors may already be pricing in a recovery in the office furniture market, particularly as most industry forecasts suggest an improving 2015 outlook. That said, uncertainty surrounding the timing of the company’s return to historical growth will likely linger until the outlook for U.S. office construction, occupancy, and employment improves. Longer term, the combination of increased competition and elevated commodity costs may remain a drag on profitability, requiring KBAL to acquire local manufacturing internationally and expand distribution in order to achieve scale. Kimball Electronics (“”KE””), as an independent company, appears well-positioned to benefit from healthy trends in the automotive and industrial sectors (growing at a five-year CAGR of 20%), yet faces potential revenue risk associated with the loss of its largest customer, representing 13% of F2014 sales.
Ultimately, both KBAL and KE can be characterized as small businesses in intensely competitive markets where scale is a key determining factor for competitive success. That said, for potential investors willing to tolerate the near-term revenue risk and ensuing volatility at KE, the company may be able to leverage its scarcity value over time. Specifically, the EMS industry continues to streamline the supply chain, favoring broader, solutions-based EMS suppliers, thus supporting the argument for further consolidation. While a potential sale does not appear to be a motivating factor for the spin-off, it would not be unreasonable to view KE as a potential acquisition candidate over time, particularly given consolidation in the EMS industry.

While it may be possible for KE to generate increased equity value as a scarce resource, the reverse may hold true for KBAL. Specifically, the company’s historical advantage as an office pure-play may diminish over time as the traditional office market converges with the home/consumer markets, resulting in saturation or erosion of KBAL’s addressable market and future profitability. Already, Kimball’s competitors have begun to increase their consumer presence via acquisition, product line expansion, and distribution – potentially requiring Kimball to similarly acquire assets and diversify its product line. Underscoring this possibility is management’s recent commentary surrounding increased product development efforts, which could result in increased operating expenses for post-spin KBAL going forward.

Based on an analysis of projected sales, EBITDA, assets, free cash flow, and dividend yield, post-spin fair value estimates of $11.60 per share of KE (based on a 3:4 distribution ratio) and $6.92 per share of KBAL can be derived, for a pre-spin sum-of-the-parts value of $16 per share. This exercise suggests that the shares are approaching full valuation heading into the transaction, likely already pricing in a continued recovery and potentially improving fundamentals. Given the limited upside, the shares are not recommended for purchase at this time. One could look to a more attractive pre-spin entry point below $13.