On March 1, 2018, The Brunswick Corporation (NYSE: BC) announced that its Board of Directors has authorized proceeding with a tax-free spin-off of its Fitness business as an independent publicly traded company, “”FitnessCo.”” The transaction is expected to be completed by the end of Q1 2019, subject to final approval from Brunswick`s Board and other customary conditions. Based on estimated 2019 EBITDA, we derive a preliminary pre-spin sum-of-the-parts valuation of $68 per share. With the pre-spin fair value estimate suggesting 11% upside from BC’s current consolidated share price ($61.07 as of this writing), the shares appear to be approaching a full valuation for the transaction.

BC plans a tax-free spin-off of its Fitness business

• Today, Brunswick announced plans to spin-off its Fitness business, which includes the Life Fitness, Hammer Strength and Cybex brands, into a standalone publically-traded company via a tax-free spin-off.
• Subject to final Board approval, the transaction is expected to be completed by the end of 1Q 2019.
• The company will hold a conference call to discuss the transaction this morning at 11 a.m.; call-in at (888) 771-4371 using passcode 46574630.
• Recall, we initially recommended BC in December 2017 asserting shares were undervalued relative to the sum value of its parts, particularly the high-margin Parts & Accessories piece of its Engine business.  Later that month, the company announced plans to divest its Sea Ray boat brand, which we would estimated would give the company a more profitable/less cyclical mix.  Subsequently, in January 2018, investor Owl Creek, a more than 2% holder, issued a letter to BC’s Board asserting the stock was undervalued and recommending, among other things, a spin-off of the Fitness business.
• To be sure, management’s efforts to unlock value for shareholders have helped drive an about 12% gain in BC’s stock since our initial publication (versus a 3% gain in the S&P 500 and a 1.5% decline in the Russell 2000).
• Notably, our fair value estimate of $69 per share, which reflects a blended multiple of 8.0x of 2019E EBITDA of ~$740 million as well as projected net cash of $116 million, implies incremental upside of about 13%.
• That said, given this announcement we will transfer coverage of BC to our colleagues at The Spin-Off Report who will be providing in-depth analysis of the impending transaction

On February 27, 2018, after the market close, KAR Auction Services Inc. (NYSE: KAR) announced its intention to separate its IAA Salvage Auction business into an independent publicly-traded company via a tax-free spin-off, Insurance Auto Auctions (IAA). The transaction is anticipated to be completed within the next twelve months. On a preliminary pre-spin sum-of-the-parts basis, a valuation of $58 for KAR can be derived, which implies 6.1% upside from KAR’s current share price ($54.30 as of this writing).

On February 21, 2018, EQT Corp. (NYSE: EQT) announced its intention to separate its Midstream business into an independent publicly-traded company via a tax-free spin-off. The transaction, is anticipated to be completed by the end of the third quarter of 2018. On a preliminary, sum-of-the-parts basis, EQT can be fairly valued at $65 per share.

TFII backs 2018E adj. EBITDA guidance of ~$600 million; TL spin-off could be on the table for mid-2018; fair value increased to $38 per share (from $36) on initial 2019E forecasts

• For 2017, total revenue from continuing operations increased almost 18% to $4.7 billion while adjusted EBITDA increased 16% to $514.5 million.  Adj. EPS increased 6% to $2.08.
• The company ended 2017 with a leverage ratio of less than 3.0x on net debt of ~$1.5 billion.
• Importantly, management backed prior commentary calling for 2018E adjusted EBITDA of  ~$600 million (versus consensus of $585 million), indicating that the underlying operating environment is strong and that the U.S. TL operation is showing signs of sustainable improvement.
• As well, based a net capital spending budget of ~$150 million management commentary suggests free cash flow of $340-$345 million in 2018 (or ~$3.70 per share), which will be deployed toward the recently increased dividend (~$75 million), M&A (~$100 million), share repurchases and debt reduction.
• In addition, TFII expects to generate ~$100 million of incremental proceeds from the sale-leaseback of several Canadian properties, which will likely be used to accelerate share repurchases with the aim of reducing the diluted share to ~85 million (from ~90 million).
• On the transactional front, TFII intimated that a spin-off of the U.S. TL business remains on the table looking into mid-2018 assuming operational performance continues to improve.
• Based on our initial 2019E EBITDA forecast of $623.5 million, a blended multiple of 7.3x and projected net debt of $1.1 billion our fair value forecast is increased to $38 per share (from $36), implying 27% of incremental upside.
• For context, the shares have appreciated about 13% since our initial recommendation in June 2017 (versus 11.5% increase in the S&P 500 and a 9% rise in the Russell 2000) but at less than 7x 2019E EBITDA and with a FCF yield of 12% we think TFII shares remains an attractive investment opportunity.

Maintain fair value of $126 per share; Foodservice divestiture is at a premium multiple and redeployment opportunities are attractive; initial 2018 sales guidance was solid but margin commentary was modestly disappointing

• As previously announced, CSL agreed to sell its Foodservice Products (CFS) business to private equity firm, The Jordan Company, for $750 million, which, by our calculation implied an attractive purchase multiple of ~13.5x 2017 EV/EBITDA.
• After-tax proceeds, which are expected to be around $640 million, will be redeployed toward M&A in the CFT, CCM and CIT segments as well as toward share repurchases.  (Note: we view the CBF segment, which is not likely to be a focus for incremental acquisition dollars, as having an attractive near-term growth profile but also a source of longer-term optionality.)
• On the share repurchase front, CSL increased its authorization by 5 million shares to over 7 million (or about 11% of the diluted share count); at year-end, the leverage ratio was less than 1.7x and we project FCF of ~$370 million (or ~$6 per share) in 2018.
• In terms of 2018 guidance, on a consolidated (and continuing operations) basis, CSL expects top-line growth in the “mid-teens” with corporate and D&A expense of $65-$70 million and $180-$190 million, respectively.  Capital expenditures are projected in the $135-$160 million range and free cash flow conversion is expected to be more than 100% (of net income).
• By segment, management expects 2018 top-line growth in the “mid-teens” at CCM with “mid-single digit” growth at CIT and CFT and a “low-teens” growth rate at CBF.
• Our sum-of-the-parts fair value estimate of $126 per share reflects a blended multiple of ~11x (previously 10.5x) on 2018E EBITDA of ~$745 million (previously $770 million) less projected net debt of $538.5 million, which includes the expected after-tax proceeds from the CFS divestiture.
• For context, CSL shares have returned ~7% since our initial recommendation in July 2017 (versus a 4% gain in the S&P 500 and a 3% rise in the Russell 2000).

Above, please find a Hidden Opportunities update on The Madison Square Garden Company (NYSE: MSG).

Fair value increased to $290 per share (from $282), reflecting Forbes’ updated valuation of the New York Knicks; view potential sale of the New York Liberty as offering marginal optionality

• In its annual valuation list of NBA Basketball teams Forbes magazine increased the estimated value of the New York Knicks franchise to $3.6 billion (from $3.3 billion), representing a ~9% year over year improvement.
• This estimated value represents an 8.5x multiple on team revenue and a less than 26x multiple of estimated EBIT (compared with the 35x-plus multiple paid for the Houston Rockets in September 2017).
• Value is assigned across four key areas, including the franchise’s value attributable to revenue sharing agreements, city/market size, the franchise’s arena and its brand.  Excluding the value of the Knicks’ arena, Madison Square Garden, whose value is captured in our assessment of the company’s owned-real estate, the team’s value increased about 13% year over year to $2.77 billion (from $2.45 billion).
• Based on this adjustment (along with minor updates to MSG’s net cash balance and diluted share count as well as the estimated value its investments in unconsolidated affiliates) our sum of the parts fair value estimate is increased to $290 per share (from $282; see Exhibit #1 on page 2).
• As previously announced, MSG is seeking a buyer for its WNBA franchise, the New York Liberty.  While we continue to place no value on the Liberty in our base case valuation scenario we would note that its potential monetization could offer incremental (albeit marginal) upside.

For context, shares of MSG have declined about 2% since our initial publication in late-October 2017 (versus a 4% increase in the S&P 500 and a 1% increase in the Russell 2000).  That said, with almost 35% upside to our current base case valuation (and minimal implied downside to the bear case) we continue to view shares as an attractive investment.

Above, please find a Hidden Opportunities update on Carlisle Companies (NYSE: CSL).

CSL agrees to sell its Foodservice business to Jordan Co. for $750 million

• Today, CSL announced a definitive agreement to sell its Foodservice Products (CFS) business to The Jordan Company, a private equity firm, for $750 million (compared with our segment valuation of ~$560 million).
• The deal, by our calculation, implies a purchase multiple of 12.8x 2017E EV/EBITDA and 12.1x 2018E EV/EBITDA (versus our 9.0x valuation assumption).  The implied EV/sales multiple is more than 2.3x.
• The deal is expected to close in 1Q 2018, subject to customary closing conditions, including regulatory clearances.
• Management will hold a conference call at 5 p.m. (ET) on February 8^th to discuss 4Q 2017 results as well as provide incremental details on the transaction, after which we will update our current forecasts.
• Our sum-of-the-parts fair value estimate of $126 per share reflects a blended multiple of 10.5x on 2018E EBITDA of ~$770 million less projected net debt.
• For context, CSL shares have returned ~20% since our initial recommendation in July 2017 (versus a 14% gain in the S&P 500 and a 10.5% rise in the Russell 2000).

Withdraw recommendation of UFS with shares trading roughly in-line with our fair value estimate

• UFS shares returned ~40% since our initial recommendation in March 2017 (versus a 17% gain in the S&P 500 and a 16% rise in the Russell 2000).
• That said, with the stock trading roughly in-line with our fair value estimate of $51 per share, which reflects a blended multiple of ~6.5x on 2018E EBITDA, we prefer to maintain a disciplined approach and withdraw our recommendation, as of today’s close.
• We will continue to monitor UFS for an opportunity to re-recommend the shares if valuation shifts or if incremental steps toward potential strategic alternatives materialize.  On the latter front, the company has retained Jacobs Engineering (NYSE: JEC) to evaluate the feasibility of repurposing some of its paper assets as containerboard.

Withdraw recommendation of CHE with shares trading at a modest premium to our fair value estimate

• CHE shares returned ~81% since our initial recommendation in October 2016 (versus a 26% gain in the S&P 500 and a 25% rise in the Russell 2000).
• That said, with the stock trading at a modest premium to our fair value estimate of $242 per share, which reflects a blended multiple of ~12x on 2018E EBITDA, we prefer to maintain a disciplined approach and withdraw our recommendation, as of today’s close.
• We will continue to monitor CHE for an opportunity to re-recommend the shares if valuation shifts or if incremental steps toward potential strategic alternatives materialize.  On the latter point, we have long discerned CHE’s management as open to a range of potential alternatives, including a spin-off or Reverse Morris Trust (RMT), for its disparate businesses, particularly if a potential acquirer emerged with a premium bid or the stock’s discount to its sum of the parts value became persistently egregious.