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Why Spin-Off? Spin-Offs are a source of significant market outperformance
for investors. Spin-Offs often result in a higher aggregate value for the
constituent pieces. Studies conducted by a range of researchers, from Penn
State to McKinsey have documented that spin-offs, on average, outperform market indexes.
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Spin-Offs Outperform S&P 500 (10 YTD)
-100.00%
-50.00%
0.00%
50.00%
100.00%
150.00%
200.00%
250.00%
BNSPIN Index CSD US Equity SPX Index
10Y Total Return 12/29/2006-7/29/2016:Bloomberg Spin Index: 192.36%Guggenheim Spin-Off ETF: 88.20%S&P 500: 88.13%
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Spin-Offs Outperform S&P 500 (YTD)
-20.00%
-15.00%
-10.00%
-5.00%
0.00%
5.00%
10.00%
15.00%
20.00%
BNSPIN Index CSD US Equity SPX Index
YTD Total Return 12/31/2015-9/20/2016:Bloomberg Spin Index: 13.35%Guggenheim Spin-Off ETF: 9.73%S&P 500: 6.37%
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Types Of Spin-OffsType of Spin-Off
Spin-Off
Carve-Out
Split-Off
Description ExampleParent firm distributes shares of the spun-off subsidiary to parent shareholders
• HERC Holdings/Hertz• MSG Networks/Madison Square Garden
• InterActiveCorp/Match Group
• CBS/OutFront Media• Motorola Solutions/Motorola Mobility
Sell a portion or all shares of subsidiary through an IPO in the equity market
Parent company’s shareholders are offered shares of a subsidiary in exchange for the parents’ shares (exchange offer)
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Spin-Off A parent distributes the stock of a subsidiary in the form of a dividend Following the distribution, the stockholders hold stock of the parent and
the stock of the company that was spun-off Two independent companies exist where before there was only one A spin-off effectively removes the parent from management and control of
the subsidiary Pure spins are tax efficient
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Carve-Out Parent company sells some or all of the stock of a subsidiary to the public
in an IPO The carve-out may pay a portion of the IPO proceeds to its parent Parent companies sometimes link subsidiary IPOs and Spin-Offs (two
step spin) Parent would typically sell less than 20% of subsidiary to the public and
then distribute the balance of the stock to their shareholders in a tax-free distribution (Example: Bristol-Myers Squibb / Mead Johnson Nutrition)
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Equity Carve-OutsParent sells Equity in the New Firm to the Public (IPO) and creates a New Publicly Traded Entity.
Parent65%Carve-Out in
an IPO10%
Subsidiary25%
Parent65%
Subsidiary35%
• A carve-out brings cash into the firm, whereas a pure spin-off does not• Carve-outs disperse assets and ownership in the assets to non-owners of the original firm• Carve-outs are often an intermediate step before a full spin-off
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Split-Offs In a split-off, the investor must decide between the new company and the parent. Holders of the parent company stock must choose to continue owning stock in the
parent or, instead, exchange some or all of the parent stock for stock in the spin-off.
The parent offers its existing shareholders stock in the subsidiary in exchange for shares in the parent company.
If the parent distributes 80% of the subsidiary stock, the split is tax-free. What’s more, in an effort to induce enough shareholders to swap stock, investors are offered shares in the subsidiary that are worth more than the shares being returned to the parent company. This offered “premium” explains why split-offs are often oversubscribed.
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Selected Split-Off Transactions
Parent/Sub DateSize
($mm)
% of Parent Shares
Repurchased
Initial
Prem.Closing
Prem.
Over Sub.
Factor
Sub as % of Parent
Market
AT&T / AWE 5/21/01 $7.8 B 10% 7% 1% .87x 22%
Sara Lee / Coach 4/4/01 $998 M 5% 12.90% 6.90% 2.1x 6%
General Motors / Hughes Electronics 5/19/00 $8.27 B 14% 17.70% 10.10% 3.9x 70%
DuPont / Conoco 8/6/99 $11.7 B 13% 17.90% 3.30% 2.4x 20%
Lockheed Martin / Martin Marietta 10/18/96 $906 M 4% 17.50% 5.20% 5.4x 6%
Eli Lilly / Guidant 9/18/95 $1.55 B 6% 13.10% 8.80% 2.9x 9%
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Drivers for Spin-Offs Lack of synergy De-conglomeration Focus in core business Legal / regulatory Undervalued assets Monetize value of
subsidiary
De-leverage balance sheet Riskiness of the subsidiary Avoid a takeover Tax avoidance Conflicts of interest
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Successful Spins Easier for the markets to recognize underlying value Pursue compelling business opportunities Greater freedom to pursue new ventures, streamline production, and pare
overhead Accountability and direct incentives (stock & options) Eliminates competitive disadvantages Greater access to capital Increase corporate focus for the spin-off and parent
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Shift from Conglomeration to Pure Play Era of conglomerate (1960s - 1980s)
- Firms diversify holdings to “smooth” earnings- Market rewards empire building
Conglomerates fall out of favor- Focus on cost- Difficult to value all businesses in diversified companies- Market discounts conglomerate stocks
Rise of the Pure Play (1990s - Current)- Market rewards firms that concentrate on core business- Competitive landscape pressures management to improve operating efficiency and clarify strategic decision making
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Number of Completed Spin-Offs by Year19
8519
8619
8719
8819
8919
9019
9119
9219
9319
9419
9519
9619
9719
9819
9920
0020
0120
0220
0320
0420
0520
0620
0720
0820
0920
1020
1120
1220
1320
1420
1520
16
0
10
20
30
40
50
60
70
19
27
21
34
27 27
18
23
33
2831
41
36
44
66 66
3941
21
35
2731
34
29
20 20
27
37 37
60
40 39
2016 Estimated Total
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2016 Completed Spin-Offs (20 YTD)
Key: SP = Spin-Off CO = Carve-Out SPLIT = Split-Off
Announce Spin-Off TaxParent Symbol Spin-Off Symbol Date Date Exempt Ratio
1 Fiat Chrysler FCAU Ferrari N.V. RACE 10/29/2014 1/3/2016 Y 1:102 W.R. Grace GRA GCP Applied Technologies GCP 2/5/2015 2/3/2016 Y 1:13 Manitowoc MTW Manitowoc Foodservices MFS 1/29/2015 3/4/2016 Y 1:14 Integer Holdings ITGR Nuvectra NVTR 4/30/2015 3/14/2016 Y 1:35 Armstrong World Industries AWI Armstrong Flooring AFI 2/23/2015 4/1/2016 Y 1:26 MGM Resorts MGM MGM Growth Properties MGP 10/29/2015 4/20/2016 CO7 Community Health Systems CYH Quorum Health QHC 8/3/2015 4/29/2016 Y 1:48 Gaming & Leisure Prop GLPI Pinnacle Entertainment PNK 7/21/2015 4/28/2016 N 1:19 WestRock WRK Ingevity NGVT 1/8/2015 5/15/2016 Y 1:6
10 Starwood Hotels & Resorts HOT Vistana/Merger: Interval Leisure Group IILG 2/10/2015 5/12/2016 Y 1:111 Philips PHG Philips Lighting N.V. LIGHT 6/30/2014 5/27/2016 CO12 IDT Corp IDT Zedge ZDGE 8/29/2013 6/1/2016 Y 1:313 Brookfield Asset Management BAM Brookfield Business Partners BBU 10/7/2015 6/20/2016 N 1:5014 HERC Holdings HRI Hertz Rental Car Holding Co HTZ 3/18/2014 6/30/2016 Y 1:515 Danaher DHR Fortive Corporation FTV 5/13/2015 7/2/2016 Y 1:216 Liberty Ventures LVNTA CommerceHub CHUBA/B 11/25/2015 7/22/2016 Y .1/0.2:117 Emergent BioSolutions EBS Aptevo Therapeutics APVO 8/6/2015 8/1/2016 Y 1:218 E.ON SE EONGY Uniper SE UN01 11/30/2014 9/12/2016 Y 1:1019 Noble NE Noble Midstream Partners LP NBLX 10/28/2014 9/15/2016 CO20 Ashland ASH Valvoline VLV 9/22/2015 9/23/2016 CO
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Q4-2016 Expected Spin-Offs (est. 19)Announce Spin-Off Tax
Parent Symbol Spin-Off Symbol Date Date Exempt Ratio1 Air Products & Chemicals APD Versum Materials "VSM" 9/16/2015 10/1/2016 Y 1:12 Honeywell HON AdvanSix "ASIX" 5/12/2016 10/1/2016 Y 1:253 RR Donnelley RRD Financial Communications Services "LKSD" 8/4/2015 10/1/2016 Y 1:84 RR Donnelley RRD Publishing & Retail Centric Print Services "DFIN" 8/4/2015 10/1/2016 Y 1:85 Johnson Controls JCI Adient "ADNT" 7/24/2015 10/28/2016 N 1:106 Yum! Brands YUM Yum! China 10/20/2015 10/31/2016 Y SP7 CBS Corp. CBS CBS Radio 3/15/2016 Oct-16 CO8 Alcoa (Arconic) AA ("ARNC") Alcoa "AA" 9/28/2015 Oct-16 Y SP9 Liberty Ventures LVNTA Liberty Expedia "LEXEA/B" 11/25/2015 Oct-16 Y SPLIT
10 ConAgra CAG Lamb Weston "LW" 11/18/2015 Fall-16 Y SP15 Cousins Properties CUZ Parkway "PKY" 4/29/2016 Q4-16 Y 1:116 IDT Corp IDT SpinCo 8/27/2015 Q4-16 Y SP17 HCP Inc. HCP Quality Care Properties "QCP" 5/9/2016 Q4-16 N SP18 Overseas Shipholding Group OSG OSG International "OIN" 3/1/2016 Q4-16 N SP11 Hilton Worldwide HLT Hilton Grand Vacations "HGV" 2/26/2016 Dec-16 Y SP12 Hilton Worldwide HLT Hilton Park Hotels & Resorts "PK" 12/16/2015 Dec-16 Y SP13 Xerox XRX Conduent 1/29/2016 Dec-16 Y SP14 Varian Medical Systems VAR Varex Imaging Company "VREX" 10/23/2016 Dec-16 Y SP19 SUPERVALU SVU Save-A-Lot 7/28/2015 Dec-16/Jan-17 N SP
Key: SP = Spin-Off CO = Carve-Out SPLIT = Split-Off
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Joe Cornell, CFA Spin-Off Advisors, LLCPublishers of Spin-Off Research
spinoffresearch.com/trial
1327 W. Washington Blvd., Suite 4G, Chicago IL, 60607 | [email protected] | 312-939-8900
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