On Tuesday, May 24, 2011, Telecom Corporation of New Zealand Limited (TEL NZ) (‘Telecom’), New Zealand’s leading phone provider, announced plans to split its telecommunications retailing and telecommunications network operations into separate companies by the end of 2011.
The announcement comes after the company was granted the right to build out the country’s government-sponsored broadband network in 24 regions, including the biggest city Auckland and the capital Wellington, the lower North Island, and most of the South Island. The company stated that it expects to begin work towards the end of 2011.
The plan requires that that the company demerge its telecommunications network operations into a separate-listed entity, which will be known as Chorus. Meanwhile, Telecom will continue operations as a telecommunications retailer. The separation, which Telecom had put forward to satisfy competition concerns, still requires a law change and shareholder approval. It is expected that the separation will be accomplished through a court approved demerger scheme, which will leave Telecom shareholders with stakes in the two companies.
Under the agreement, the government’s Crown Fibre Holdings will invest NZD 929 million (1 USD = 1.2241 NZD) in Chorus through a mix of debt and equity as the broadband network is built. The shares will be non-voting and no dividends will be paid before 2025, while the debt will be unsecured and non-interest bearing. The government has promoted the plan to supply fast internet to 75 percent of the country by 2019 through fiber-optic cables as a key policy to boost economic growth. It is investing a total of NZD 1.5 billion to build the network, with the total cost estimated to be as much as NZD 7.5 billion.

On November 8, 2010, Toromont Industries Limited (‘Toromont’) announced that its Board of Directors unanimously approved a proposal to spin off Enerflex Limited (‘Enerflex’), a supplier of natural gas production and processing equipment. Toromont Industries Limited currently operates through two business segments: the Equipment Group and the Compression Group, most of the operations of which will comprise Enerflex.
The Compression Group is a global leader specializing in the design, engineering, fabrication, and installation of compression systems for natural gas, coalbed methane, fuel gas, and carbon dioxide. After the spin-off, Enerflex will continue to operate as a market leader in the gas compression systems business in Western Canada and Australia and as a leading supplier in the United States and the Middle East.
Importantly, the spin-off follows Toromont’s recent acquisition of the compression business of the Enerflex Systems Income Fund (‘ESIF’), which was merged with and into Toromont’s existing natural gas compression business on January 20, 2010.1 And, though the combined businesses reported 2010 revenues of CAD 1,125 million, one must recognize the inherent cyclicality of the natural gas compression business. For example, in 2008, ESIF and the Toromont Compression Group reported revenues of CAD 1,046 million and CAD 827 million, respectively.

On December 2, 2010, TNT N.V. announced its intention to proceed with the demerger of its express mail division. TNT, through its two divisions-TNT Express and TNT Mail-is part of the global document, parcel, and freight transportation and distribution industry. TNT Mail is one of the world’s leading postal operators. It is the incumbent postal company in the Netherlands, with international operations focused on Germany, the United Kingdom, and Italy.
As a result of the decline in traditional mail volume, however, the industry’s long-term growth prospects appear rather bleak. In contradistinction, TNT Express is the European leader in intra-European business-to-business express mail; as well, the division has significant operations in both China and South America and a growing focus on expanding operations in India. In management’s own words:

The three valuation scenarios presented below summarize the valuations using reported 2010 EBIT, minimum estimated 2011 EBIT, and minimum target 2015 EBIT. Importantly, the TNT Mail and TNT Express valuations assume as constant the EBIT multiples of 5.01 and 12.94, respectively. The minimum target 2015 EBIT is presented on an undiscounted basis and for reference purposes only, not necessarily as an affirmation of the validity of management’s projections. With respect to TNT Express, one should also interpret the initial, post-demerger trading price in the context of the ‘normalized’ EBIT exercise found at the conclusion of the valuation section above.

Though, it should be noted that the potential for achieving such management estimates appears more likely for the more advantageously positioned TNT Express business, as opposed to the TNT Mail business. Should TNT Mail succeed in stemming longer-term declines in domestic market share loss and ultimately achieve minimum target 2015 EBIT, the appropriate multiple would likely be significantly higher than the multiple of 5.01.

The Rieter Group, based in Winterthur, Switzerland, has operations in the textile and automotive industries on a global scale. The company was formed in 1795 and it now has a presence in 20 countries with nearly 70 manufacturing facilities and a total worldwide workforce of almost 13,000 employees, only 12% of whom are based in Switzerland.
On Tuesday, March 22, 2011, Rieter’s board of directors announced its decision to proceed with plans to separate the Textile Systems and Automotive Systems divisions into two independent companies. Following the approval of shareholders, which was received at the annual meeting on April 13, 2011, Rieter is expected to distribute shares of the Automotive Systems division on a one-for-one basis in the form of a special dividend. The name of the new company will be Autoneum Holding AG, and shares of that company are expected to be listed on the SIX Swiss Exchange on May 13, 2011. The current Rieter Textile Systems division will continue to trade as an independent company under the name of Rieter Holding (and will retain the symbol, RIEN SW). Rieter acquired its Automotive Systems division in the mid-1980s in order to create a counterweight to its established, but more cyclical, textile machinery business segment.
From that point, the Automotive division expanded steadily, benefiting not only from the fairly consistent growth rates in the worldwide automotive component supply business, but also by numerous acquisitions. Rieter’s Textile Systems Division has also reached a point at which its operations by themselves sufficiently counteract the demand cycles, according to management. Therefore, there are no synergies between the two divisions and no perceived benefits from keeping them together.

On August 12, 2010, Essar Shipping Ports & Logistics Ltd. (“ESPLL”) announced its intention to restructure by way of a demerger that will create two separate entities, to be named Essar Ports Ltd. and Essar Shipping Ltd. Under the demerger scheme, ESPLL will transfer its shipping, logistics and oilfields services businesses to Essar Shipping (“ES”). The ports business will be retained by the company, at which time it will be renamed Essar Ports (“EP”). For every three shares of ESPLL, shareholders will then receive one share of ES and two shares of EP.
Following the demerger, the parent Essar Group will retain an approximately 84% ownership in the respective companies, with public shareholders holding the remainder of the shares, as noted below:

On May 26, 2010, Foster.s Group Limited (FGL AU) announced its intention to pursue the demerger of the wine business from the beer, cider, and spirits business. The Scheme Meeting and General Shareholders. Meeting are scheduled for April 29, 2011. Pending approval from shareholders, it is expected that the last day to trade in shares of Foster.s Group with entitlement to the demerged shares of Treasury Wine Estates Limited (TWE AU) will be Monday, May 9, 2011. Following the demerger, shares in Treasury Wine Estates will trade on a when-issued basis from Tuesday, May 10, 2011 through Monday, May 23, 2011, with regular-way trading beginning on Tuesday, May 24, 2011.

The proposed demerger is an extension of the company.s restructuring program that was announced on February 17, 2009 upon completion of its Wine Strategic Review. The review was undertaken to address the unsatisfactory performance of the wine business since the acquisitions of Beringer and Southcorp in 2000 and 2005, respectively.2 Some of the key elements of the program include: