Accor Services, or Edenred SA, is an impressive business from the perspective of its historical operating performance as well as its croupier-like business model characteristics, more generally. While the valuation at the consolidated level does not appear to discount the disparate operations of either hotels or services, the act of the distribution itself could serve as a catalyst for future selling pressure.

It should be noted that with a market capitalization of €9.2 billion, Accor SA is currently the 30th largest member of the CAC-40; the smallest member of the CAC-40 is Lagardere S.C.A. with a market capitalization of €3.43 billion. Based on our fair value price estimate of €15.1 per share, the fair value market capitalization of Edenred SA is estimated to be approximately €3.41 billion.

Moreover, with many estimates pointing to a post-distribution share price of €11 to €15, it appears quite likely that Edenred SA will fall below the minimum market capitalization requirement for CAC-40 membership. As a result, it has already been decided that Edenred SA will trade as a member of the CAC-40 only until July 5, at which point it will be removed from the index.

The possibility that the Edenred SA trades at the low end of estimates as well as the potential for future selling pressure due to its removal from the CAC-40 Index could very well present investors with a potentially more remunerative buying opportunity than buying on a pre-distribution basis. Ergo, it is advised that one refrain from purchasing shares in Accor SA prior to distribution and shares in Edenred SA prior to index removal on July 5.

On May 26th, Foster’s Group (FGL AX) Limited announced its intention to pursue a demerger of its Beer and Wine businesses, each of which will have separate stock exchange listings following the transaction. The ultimate timing of the demerger is uncertain, and would occur, at the earliest, during the first half of 2011.

The proposed demerger is part of the company’s overall restructuring program that was implemented in February 2009. Some of the key elements of the program include:

• Appointing new senior management to the Wine and Beer businesses
• Implementing stand-alone organizational structures for Beer and Wine, including the sales and marketing functions of each business
• Reshaping the Wine portfolio brand that may include certain vineyard divestments
• Achieving significant annual cost savings as a result of these organizational implementations

At this point, the motive of the proposed transaction appears relatively clear. The company would like to separate the somewhat distinct valuation and financial characteristics of each business from the current aggregated valuation, and to also allow these separated companies the ability to pursue unique growth strategies in each respective industry. While Foster’s maintains several of the leading beer brands in Australia, the wine business appears to have had less success lately, and has encountered a difficult operating environment over the last few years.

Foster’s produces some of the world’s most well-known alcoholic beverages, and has operations in Australia, Asia, the United States, Europe, the Middle East, and Africa. If completed as proposed, the Beer company would likely include brands such as Foster’s, Victoria Bitter, and Crown Lager. The Wine company currently produces brands including Beringer, Chateau St. Jean, Wolf Blass, Rosemount, Greg Norman Estates, and Etude Wines.

On the basis of the pro forma market values, it appears reasonable to expect Capital Shopping Centres to be at risk of removal from the FTSE-100 and for Capital & Counties to be removed from the FTSE-100 and placed in the FTSE-250.

Apart from the potential for relevant index adjustments to place further pressure on share prices, the more important lack of any obvious undervaluation is cause for withholding a recommendation on the purchase of shares in both Liberty International PLC—to be renamed Capital Shopping Centres PLC—and Capital & Counties Properties PLC.

While the assets themselves are certainly attractive, the question of price is of the utmost importance given the prevailing uncertainty in the UK real estate industry. Should a selloff ensue subsequent to the demerger, which is sufficient in magnitude to provide one with an ample margin of safety against potential increases in capitalization rates, future purchase may be warranted.

EnQuest will likely report strong earnings and revenue growth in 2010, driven by a ramp-up in production, mostly as a result of a full year’s contribution from the two Don fields, a more favorable exchange rate, and higher oil prices relative to 2009. Longer-term, though, the company is facing considerable challenges as its current oilfields are generally in decline and substantial amounts may have to be invested to increase reserves and production, negatively affecting its free cash flow. The proposed valuation of £915 million appears to be either fair, or slightly overpriced, based on expected earnings and the current valuation of oil companies in general. Therefore, shares of EnQuest are not recommended for purchase.

Given the discounted multiple at which the royalty interest trades, combined with the recent revaluation of the royalty interest book value, it seems reasonable, therefore, for one to expect a rate of return on the order of at least 30 percent, if not higher. Furthermore, since one should expect the spin-off itself to act as a catalyst through the deconsolidation of royalty and industrial group financials, it wouldn’t be unreasonable to expect the realization of value to occur very shortly thereafter. As discussed, however, it is worth noting the past actions of management, both with respect to the impressive creation of shareholder value over a prolonged period of time, as well as instances of questionable corporate governance. Finally, given the short-term nature of value manifestation in spinoffs of this type, it seems quite likely that questions regarding management will prove irrelevant if one is simply seeking the realization of a near-term rate of return. Therefore, KHD Humboldt Wedag International Ltd. is recommended for purchase.

At the current time, Carphone Warehouse’s valuation appears to be attractive, even though its shares have doubled in the last 12 months. TalkTalk is obviously a business in transition. Given that it was only founded seven years ago and that it currently has grown to 4.2 million subscribers, historical valuations are not meaningful. However, based on comparative valuations, a case for a much higher share price can be made. The New Carphone Warehouse should be considerably steadier, in terms of valuation. Since both companies will likely experience volatile trading in the days after the demerger is completed, as the investor base for the two companies may change, opportunities could be created for long-term investors. If TalkTalk’s shares were to drop to around 110-120p following the demerger, a patient investor could realize a 55-65% return if the company is indeed acquired. On the other hand, if the New Carphone Warehouse’s shares could be acquired at around 80p, a long-term investor could realize a 45% return if the “big box” concept is successful. Consequently, the package is recommended for purchase.

While a case could be made for why the Indian cement industry might evolve in a manner similar to that of China, a conservative posture is to be preferred, with the possibility of much higher earnings growth viewed as free optionality in the event that growth exceeds conservative estimates. The more conservative case that can be made for purchase of the combined Grasim-UltraTech cement business is that over the next five years consumption will expand in line with a five year production target of 350 million tons per annum. If this does indeed transpire and one assumes that similar earnings multiples apply, Grasim and UltraTech should compound on the order of 20 percent per annum. This assumes, however, that margins, market share, cement pricing, earnings multiples, et cetera all remain constant. Given the historical precedent for the successful exploitation of economies of scale and capacity expansion, it is unlikely that any of these variables will remain unchanged. As a result, a 20 percent annualized rate of return is likely rather conservative.

Since the economic interest of Grasim and UltraTech shareholders remains largely unchanged as a result of the demerger and subsequent merger of Samruddhi into UltraTech, it is irrelevant which security one chooses to make the conduit of choice for an investment in the Indian cement industry. Importantly, the presence of able, wise and strategically adept management, with a demonstrated ability to create enormous value for shareholders, combined with the potential for significant growth in Indian cement demand over the coming decade suggests that Grasim and UltraTech are both appropriate for those with a long-term investment horizon and a positive view on the future of Indian growth. Therefore, both Grasim and UltraTech are recommended for purchase, with an investment horizon no shorter than five years due to the inherent volatility of the cement industry.

Cable & Wireless has been working towards the current demerger since the company’s restructuring program began in about 2003. By creating two operating companies that provide somewhat similar services, yet are located in profoundly different regions of the world, it is rather sensible to undertake the current transaction, since both have uniquely different valuation attributes. Many times, this will create a discount at the parent company. However, it does not appear that such a discount exists, and the current price is only slightly below a reasonable estimate of fair value. Therefore, the purchase Cable & Wireless is not recommended at this time, based on a lack of shorter term undervaluation.

Investors should, however, monitor the clearing prices relative to the fair value estimate in the event that the shares would indeed trade at a considerable discount, which could then present a more immediate buying opportunity.

In addition, over a longer term time horizon, the income-oriented investor might view the CWC shares, depending on the trading price, with some buying interest. It will likely provide a considerable dividend that, when coupled with a modest earnings growth rate and free cash flow yield, could provide a base annual return of at least 10%.