September 2019 Spin-Off Insights Newsletter

Monthly Spin-Off Recap:

New Spin-Off Announcements

  • Fortive Corporation: Industrial Technologies (Transaction Structure TBD)

Closed Spin-Off Transactions

  • Danaher Corporation: Envista Holdings (Carve-Out)
  • The Ensign Group: The Pennant Group (Spin-Off)
  • Nuance Communications: Cerence Inc. (Spin-Off)

Upcoming Spin-Off Transactions

  • Post Holdings: Active Nutrition (Carve-Out)

Spin-Off Pipeline Updates

  • None

Potential Spin-Off Updates

  • eBay Inc.
  • AT&T Inc.
  • Marathon Petroleum Corporation

New Spin-Off Announcement:

Fortive Corporation: Industrial Technologies (Spin-Off)

Fortive is a diversified industrial technology conglomerate that designs, develops, services, manufactures and markets professional and engineered products, software, and services for a variety of end markets. Their main products include sensors, instruments, fueling equipment, field payment systems, sterilization equipment, and software. On September 4, 2019, they announced the plan to separate into two companies. The new company will be a global industrial business focused on transportation and mobility, with assets across retail and commercial fueling, fleet management, and professional tools.

Management is still considerating the final transaction structure but expects it to be in a “tax efficient manner” and to close in the second half of 2020.

Closed Spin-Off Transactions:

Danaher Corporation: Envista Holdings (Carve-Out)

Danaher produces a wide variety of medical, industrial, and commercial products. In July 2018, they announced the plan to separate off the dental segment (Envista Holdings). Envista is one of the largest global dental product companies with positions in implants, orthodontics, and digital imaging equipment. Their products are used to diagnose, treat and prevent disease and ailments of the teeth, gums, and supporting bone.

Danaher carved-out 19.4% of Envista through an initial public offering on September 20, 2019. They continue to hold ~80.6% of Envista and plan to distribute the remaining ownership to Danaher shareholders through a pro-rata distribution (spin-off) or an exchange offer (exchange DHR shares for NVST shares) in the future.

The Ensign Group: The Pennant Group (Spin-Off)

The Ensign Group is a provider of post-acute health care services. This includes a broad spectrum of skilled nursing, assisted living, home health and hospice, and other anciallry services. Overall, they operate 188 skilled nursing care facilities for both short-stay and long-stay patients and 80 assisted and independent living facilities.

On October 1, 2019, they spun-off The Pennant Group, a leading provider of healthcare services to the senior population in the U.S. Its businesses include home health, hospice, and senior living facilities.

Nuance Communications: Cerence Inc. (Spin-Off)

Nuance Communications is a leading provider of voice recognition and natural language understanding solutions (their technology is behind Apple’s Siri). On October 1, 2019, they spun-off the automotive business, Cerence Inc., into its own separate, publically traded company.

Cerence is a leading automotive software company that provides cognitive assistance solutions to OEMs and tier 1 auto suppliers through license and software-as-a-service revenue models.

Upcoming Spin-Off Transactions:

Post Holdings: Active Nutrition Segment (Carve-Out)

Post Holdings is a consumer packaged goods company that has brands in a variety of different categories. In November 2018, they announced the plan to carve-out the Active Nutrition segment, which includes brands such as PowerBar, Dymatize, and Premier Protein, through an IPO of just under 20% of the business.

On September 20th, they announced that the Active Nutrition business will be named BellRing Brands and they filed the Form S-1 Registration Statement. The initial public offering of ~20% ownership of Bellring is expected to happen sometime in the fall.

Spin-Off Pipeline Updates:

  • None

Potential Spin-Off Updates:

eBay Inc. (Operational and Portfolio Review)

In January 2019, Elliott Management took a large stake in the company and sent a letter to the board outlining a plan that included a comprehensive portfolio review of the eBay Classifieds Group and StubHub. eBay’s margins have fallen from over 30% to the low 20% range during the last five years as they spent aggressively to try to grow the business. Despite this spending, eBay’s growth has consistently fallen short of total worldwide e-commerce sales growth.

On September 25th, eBay announced that the President and CEO, Devin Wenig, stepped down. The CFO, Scott Schenkel, will take over as CEO on an interim basis. This is a strong indication that change, in the form of divestments or spin-offs, could be coming to eBay.

AT&T Inc. (Activist)

In September, Elliott Management disclosed a large position in the company and sent a letter to the board discussing AT&T’s long-term underperformance, history of strategic and operational setbacks, and the opportunity for improvement. Soon after Elliott disclosed their investment, rumors started floating that AT&T is exploring separarting off DirecTV.

Marathon Petroleum Corporation (Activist)

On September 25th, Elliott disclosed an investment in Marathon Petroleum and sent a letter to the board. In the letter they critized the company for its chronic underperformance and discussed their plan to unlock value currently trapped in Marathon’s conglomerate structure. Elliott believes that Maraton should break up into three independent companies:

  • RetailCo – Consisting of the Speedway convenience stores
  • MidstreamCo – Would become a top-fice midstream operator
  • RefiningCo – Would become the largest independent merchant refiner by US throughput

This is not Elliott’s first time targeting Marathon. Throughout much of late 2016 and into 2017, they sought a similar plan to break up Marathon. At the time, Marathon’s management conducted a strategic review and decided to retain Speedway, but accelerated its dropdown sale of assets to MPLX, the MLP. Elliott’s odds of a successful activist campaign resulting in a break up are high given Marathon’s underperformance.

Recent Spin-Offs:

KLX Energy Services (KLXE)

The aptly named KLX Energy Services is an energy services company that predominately serves the E&P companies in the U.S. shale basins. The spin-off occurred in September 2018 as part of KLE Inc.’s merger with Boeing. KLXE mainly provides completion, intervention, and production services that help well operators reduce non-productive time and develop cost-effective, customized tools for customers’ service needs. Please see the KLXE Research Report (subscription required) to learn more about the business, industry, unique management team/compensation structure, key risks, and investment opportunity.

Elanco Animal Health (ELAN)

Elanco develops, manufactures, and markets products for both production and companion animals. They were carved-out of Eli Lilly in September 2018 and distributed to shareholders in March 2019 through an exchange offer.

Their products for production animals do everything from improving feed efficiency and leanness to treating different illnesses. On the companion animal side of the business, their products include chewable tablets for flea and heartworm along with anti-inflammatory tablets and rabies vaccines. While some may think that an animal health pharmaceutical company and a human health pharmaceutical business are similar, they are in fact quite different. They have large differences in R&D cycles, distribution, and end market drivers, just to name a few. Please see the ELAN Research Report (subscription required) to learn more about the investment opportunity, company, industry, and important risks.

Garrett Motion was spun-off from Honeywell International in October 2018. They are one of the largest manufacturers of turbochargers and electric-boosting technologies for light and commercial automotive OEMs and the aftermarket. A turbocharger provides an engine with a controlled and pressurized air intake, which improves the combustion of fuel to increase the amount of power sent through the transmission. You can read all about the company, opportunity, and key risks in the GTX Research Report (subscription required).

Frontdoor, Inc. (FTDR)

Frontdoor is a national leader in home warranties covering the repair and replacement of many major home systems, components, and appliances. They own multiple home service brands, including HSA, OneGuard, Landmark, and American Home Shield (one of the largest providers of home service plans in the U.S.). They were spun-off from ServiceMaster Global in October 2018. Overall, the company serves around two million customers through its national network of ~14,000 pre-qualified contractors. Please see the FTDR Research Report (subscription required) to learn more about the business, unique financial profile, important industry trends, key risks, and investment opportunity.

Altra Industrial Motion (AIMC)

Fortive split-off and merged their A&S segment with Altra Industrial Motion in October 2018. Altra produces a wide range of mechanical and power transmission components. The merger created a leading power transmission and motion control company while also shifting AIMC’s business mix towards more stable, faster-growing markets. However, Altra has a leveraged balance sheet and still serves some cyclical end markets. You can read the FTV / AIMC Research Report (subscription required) to learn more about the company.

Livent Corporation (LTHM)

Livent Corp is a vertically integrated lithium company that produces a variety of lithium compounds, such as battery-grade lithium hydroxide, butyllithium, and high purity lithium metal. Their products form the raw materials for a wide variety of applications, including electric vehicle batteries, greases, pharmaceuticals, and polymers. Livent was carved-out of FMC Corporation in October 2018 and fully distributed to shareholders in March 2019. They have assets in cost-advantaged areas and technical expertise in supplying processed compounds to customers. Please see the LTHM Research Report (subscription required) to learn more about the business, lithium industry, investment opportunity, key risks, and management team.

Resideo Technologies, Inc. (REZI)

Resideo Technologies manufactures security and comfort products for residential and commercial buildings as well as operates a distribution business. Their products are installed in over 150 million homes and include control and monitoring equipment for temperature, humidity, water, thermal, air, and security. They spun off from Honeywell in October 2018 and include the original Honeywell thermostat business. The business is mainly driven by residential construction and renovation & remodeling activity within the US. You can learn more about the business, investment opportunity, and important risks in the REZI Research Report (subscription required).

Arcosa (ACA)

Arcosa is a small-cap industrial conglomerate that spun-off from Trinity Industries in November 2018. They operate the business through three different segments: Construction Products, Energy Equipment, and Transportation Products. These segments produce everything from aggregates and wind towers to inland barges and pressurized storage containers. Overall, some of their businesses are slightly above average while others are below average. With the spin-off, a new CEO is running the company and is focused on improving the through-the-cycle return profile. Please see the ACA Research Report (subscription required) to learn more about the investment opportunity, business strategy, key risks, and management team.

Covetrus, Inc. (CVET)

In February 2019, Henry Schein spun-off their Animal health distribution business and merged it with Vets First Choice to form Covetrus. They are one of the leading veterinary supply chain and technology providers in the world. Covetrus serves as a key partner to help a very fragmented customer base of veterinarians make their practices more efficient and profitable while improving customer service. A number of different factors should continue to drive growth in the veterinary industry over time and provide a tailwind for Covetrus. Please see the CVET Research Report (subscription required) to learn more about the company, investment opportunity, animal health industry, and management team.

Wabtec Corporation (WAB)

General Electric spun-off their transportation segment and merged it with Wabtec in February 2019. GE Corporate continues to own a significant stake in the post-merger company, with the rest of Wabtec owned by GE shareholders and Wabtec shareholders. Prior to the transaction, Wabtec was one of the largest providers of products and services for new and existing locomotives, freight cars, and passenger transit vehicles. To their benefit, GE Transportation is not only one of the largest locomotive manufacturers, but also one of the largest servicers. As a result, this transaction combines GE’s locomotive manufacturing assets and servicing portfolio with Wabtec’s wide range of freight and transit products. Wabtec has historically been a well-managed company and they are executing this merger at what could end up being the bottom of the freight cycle. You can read all about the transaction, business fundamentals, competitive strengths, and management team in the WAB Research Report (subscription required).

Fox Corporation (FOX)

In March 2019, 21st Century Fox merged with Disney and spun-off various cable channels, the FOX Network, and company-owned television stations as Fox Corporation. New Fox’s largest assets are the cable channels (FOX News, FOX Business, FOX Sports, etc.), the FOX Network (programming rights for NFL, MLB, NASCAR, etc.), and television stations (28 full power broadcast stations). This ‘must have’ content should continue to be relevant regardless of how it is distributed. However, the industry is rapidly evolving and becoming more competitive. Please see the Fox Research Report (subscription required) for all the details on the investment opportunity and state of the media industry, as well as an analysis of the business and corporate governance.

Dow Inc. (DOW)

Dow is an enormous global commodity chemical conglomerate that spun-off from DowDuPont in April 2019. The spin-off comes a few years after Dow and DuPont merged, combined various segments, and then spun-off into multiple companies. In 2018, Dow generated pro forma revenue of about $49 billion and operating EBIT of nearly $6.2 billion. They have large fixed assets around the globe, as well as JVs with strategic partners in cost-advantaged locations. The main business driver is the difference between feedstock costs and the price received for their end products. Please see the Dow Research Report (subscription required) to learn all about the company, investment opportunity, and the various dynamics within the chemical industry.

Alcon Inc. (ALC)

Alcon is the largest eye care devices company in the world, generating ~$7.1 billion in revenue during 2018. They spun-off from Novartis in April 2019 and are now an independent, stand-alone company for the first time in many decades. Alcon operates through two segments: Surgical and Vision Care. They develop, manufacture, distribute and sell ophthalmic products and equipment for different surgical procedures, as well as contact lenses and other ocular health products.  Their solutions help eye care professionals treat refractive errors, presbyopia, dry eye, cataracts, retinal diseases, and glaucoma. Please see the Alcon Research Report (subscription required) to learn more about the investment opportunity, eye care industry dynamics, and Alcon’s business strategy, competitive strengths, capital allocation decisions, financial profile, key risks, and management team.

Kontoor Brands (KTB)

Kontoor Brands is a large Jeanswear company that is predominately comprised of two of the most popular denim brands in the U.S., Wrangler and Lee. They spun-off from VF Corp on May 23, 2019 and are now a standalone company that generates ~$2.7 billion in revenue. The Wrangler and Lee brands have struggled in recent years as consumers shift shopping habits away from the wholesale channels (department stores, malls, etc.). As a result, KTB is a much slower growth business than VF Corp and is expected to pay out a large percentage of its cash flow to shareholders in the form of dividends. Please see the Kontoor Brands Research Report to learn more about the investment opportunity, apparel industry dynamics, competitive environment, and Kontoor’s business strategy, capital allocation priorities, and key risks.

Corteva, Inc. (CTVA)

Corteva is one of the largest seeds and crop protection chemical companies in the world. They generate ~$14 billion in revenue with ~56% coming from seeds and the remainder coming from crop protection chemicals. These products help improve crop yields and farmers’ profitability. The business faces challenges that are outside of their control on a year-to-year basis, such as crop prices impacting farmer income and weather. However, it is a decent business with significant technology and distribution capabilities. These advantages include one of the largest germplasm pools in the world and direct relationships with farmers through the Pioneer Brand. To learn about the investment opportunity, important risks, the Agriscience industry, and Corteva’s business, please see the Corteva Research Report.

IAA, Inc. (IAA)

IAA facilitates the purchase and sale of salvage vehicles by providing processing, storage, and auction services through 179 sites across the U.S. and Canada, 14 sites in the U.K., and multiple digital venues. Their marketplaces bring together vehicle sellers and vehicle buyers, which maximizes the value of vehicles sold, lowers administrative costs, shortens the selling cycle and increases the predictability of return to vehicle sellers. In fiscal 2018, they facilitated the sale of ~2.5 million salvage vehicles and generated ~$1.3 billion of revenue. The IAA Research Report digs into the company and puts into context many of the issues important to investors, such as the business economics, industry structure, capital allocation priorities, and key risks.

Envista Holdings (NVST)

Envista Holdings is one of the largest global dental products companies in the world with positions in implants, orthodontics, and digital imaging equipment. Their products are used to diagnose, treat and prevent disease and ailments of teeth, gums, and supporting bone. The business has many positive characteristics (good business model, growth potential, etc.); however, there are also some risks investors need to consider, such as financial leverage, deflationary pricing, and structural industry changes. To learn more about the investment opportunity, important risks, the dental industry, and Envista’s business, please see the Envista Research Report.

2019 – 2020 Research Report Publication Schedule:

First Quarter 2019

  • Henry Schein: Covetrus (Spin-Off)
  • General Electric: GE Transportation (Spin-Off)
  • Twenty-First Century Fox: Fox Corporation (Spin-Off)

Second Quarter 2019

  • DowDuPont: Dow Inc. (Spin-Off)
  • Novartis: Alcon (Spin-Off)
  • V.F. Corporation: Kontoor Brands (Spin-Off)
  • DowDuPont: Corteva, Inc. (Spin-Off)
  • KAR Auction Services: Insurance Auto Auctions (Spin-Off)

Second Half 2019 (Exact Timing TBD)

  • The Ensign Group: The Pennant Group (Spin-Off)
  • Nuance Communications: Automotive Segment (Spin-Off)
  • Danaher: Dental Segment (Carve-Out)
  • Post Holdings: Active Nutrition (Carve-Out)
  • Eaton Corporation: Lighting Business (Spin-Off)

2020 (Exact Timing TBD)

  • The Madison Square Garden Company: Sports Business (Spin-Off)
  • Arconic: Splitting into Two (SpinCo and RemainCo TBD)
  • Ecolab: Upstream Energy (Spin-Off)
  • Eagle Materials: Separating into Two (SpinCo TBD)
  • Pfizer: Upjohn (Merging with Mylan)
  • Ingersoll-Rand: Industrial Segment (Spin-Off)
  • Tenneco: Aftermarket & Ride Performance (Spin-Off)
  • AECOM: Management Services (Spin-Off)
  • United Technologies: Carrier (Spin-Off)
  • United Technologies: Otis (Spin-Off)
  • The Gap, Inc: Old Navy (Spin-Off)
  • TiVo Corporation: Product Segment (Spin-Off)
  • Fortive Corporation: Industrial Technologies (Spin-Off)
  • General Electric: Healthcare Segment (Carve-Out)

Spin-Off Calendar (Sorted by Announced Date)

Parent NameParent TickerSpin-Off NameSpin-Off TickerSpin-Off Type Anticipated Spin DateResources
FortiveFTVIndustrial Technologies SegmentTBDTBD2H 2020Spin-Off Brief: Fortive Corporation
PfizerPFEUpjohnTBDSpin-Off2020Spin-Off Brief
Tenet HealthcareTHCConiferTBDSpin-Off2021Spin-Off Brief
AECOMACMManagement ServicesTBDSpin-Off2020Spin-Off Brief
Eagle MaterialsEXPTBDTBDSpin-Off1H 2020Spin-Off Brief
TiVo CorporationTIVOProduct SegmentTBDSpin-Off1H 2020Spin-Off Brief
The Ensign GroupENSGThe Pennant GroupPNTGSpin-OffQ4 2019Research Report
Ingersoll-RandIRIndustrial SegmentTBDSpin-Off1H 2020Spin-Off Brief
Eaton CorporationETNLighting TBDSpin-OffQ4 2019Spin-Off Brief
The Gap, Inc.GPSOld NavyTBDSpin-Off2020Spin-Off Brief
Arconic Inc.ARNCTBDTBDSpin-Off1H 2020Spin-Off Brief
Ecolab Inc.ECLUpstream EnergyTBDSpin-OffMid-2020Spin-Off Brief
United Technologies CorpUTXOtisTBDSpin-Off2020Spin-Off Brief
United Technologies CorpUTXCarrierTBDSpin-Off2020Spin-Off Brief
United Technologies CorpUTXAerospaceUTXRemainCo2020Spin-Off Brief
Nuance CommunicationsNUANAutomotive SegmentTBDSpin-OffQ4 2019Research Report
Post HoldingsPOSTActive NutritionTBDCarve-Out2H 2019Spin-Off Brief
V.F. CorpVFCKontoor BrandsKTBSpin-OffClosedResearch Report
DanaherDHRDental SegmentTBDCarve-OutClosedResearch Report
NovartisNVSAlconALCSpin-OffClosedResearch Report
Madison Square GardenMSGSports BusinessTBDSpin-Off2H 2019Spin-Off Brief
General ElectricGEGE HealthcareTBDCarve-Out2020Spin-Off Brief
General ElectricGETransportation SystemsWABSpin-OffClosedResearch Report
Henry ScheinHSICCovetrusCVETSpin-OffClosedResearch Report

TennecoTENDRiVTBDSpin-Off2020Spin-Off Brief
KAR Auction Services
KAR
Insurance Auto Auctions IAA
Spin-Off
ClosedResearch Report
DowDuPont
DWDP
Corteva Agriscience
CTVA
Spin-OffClosed
Research Report
DowDuPont
DWDP
Dow
DOWSpin-Off
ClosedResearch Report

Spin-Off Calendar (Sorted by Upcoming Spin Date)

Parent NameParent TickerSpin-Off NameSpin-Off TickerSpin-Off TypeAnticipated Spin DateResources
DowDuPont
DWDPDowDOWSpin-OffClosed (Q219)
Research Report
NovartisNVSAlconALCSpin-OffClosed (Q219)Research Report
V.F. CorpVFCKontoor BrandsKTBSpin-OffClosed (Q219)Research Report
DowDuPont
DWDPCorteva Agriscience
CTVA
Spin-OffClosed (Q219)
Research Report
KAR Auction Services
KAR
Insurance Auto Auctions IAASpin-OffClosed (Q219)
Research Report
DanaherDHREnvista HoldingsNVSTCarve-OutClosed (Q319)Research Report
The Ensign GroupENSGThe Pennant GroupPNTGSpin-OffQ4 2019Research Report
Nuance CommunicationsNUANCerenceCRNCSpin-OffQ4 2019Research Report
Post HoldingsPOSTActive NutritionTBDCarve-OutQ4 2019Spin-Off Brief
Eaton CorporationETNLightingTBDSpin-OffQ4 2019Spin-Off Brief
Madison Square GardenMSGSports BusinessTBDSpin-OffQ1 2020Spin-Off Brief
Eagle MaterialsEXPTBDTBDSpin-Off1H 2020Spin-Off Brief
ArconicARNCTBDTBDSpin-Off1H 2020Spin-Off Brief
Ingersoll-RandIRIndustrial SegmentTBDSpin-Off1H 2020Spin-Off Brief
TiVo CorporationTIVOProduct SegmentTBDSpin-Off1H 2020Spin-Off Brief
PfizerPFEUpjohnTBDSpin-Off2020Spin-Off Brief
AECOMACMManagement ServicesTBDSpin-Off2020Spin-Off Brief
United Technologies CorpUTXCarrierTBDSpin-Off2020Spin-Off Brief
United Technologies CorpUTXOtisTBDSpin-Off2020Spin-Off Brief
United Technologies CorpUTXAerospaceUTXRemainCo2020Spin-Off Brief
Tenneco
TEN
DRiV
TBD
Spin-Off2020
Spin-Off Brief
Ecolab Inc.ECLUpstream EnergyTBDSpin-Off2020Spin-Off Brief
The Gap, Inc.GPSOld NavyTBDSpin-Off2020Spin-Off Brief
General ElectricGEGE HealthcareTBDCarve-Out2020Spin-Off Brief
FortiveFTVIndustrial Technologies SegmentTBDTBD2H 2020Spin-Off Brief: Fortive Corporation
Tenet HealthcareTHCConiferTBDSpin-Off2021Spin-Off Brief

Recent Spin-Off List

Spin-Off NameSpin-Off TickerParent NameParent TickerSpin-Off TypeSpin-Off DateResources
Cerence Inc.CRNCNuance CommunicationsNUANSpin-Off10/1/2019Research Report
The Pennant GroupPNTGThe Ensign GroupENSGSpin-Off10/1/2019Research Report
Envista HoldingsNVSTDanaherDHRCarve-Out9/20/2019Research Report
IAA, Inc.IAAKAR Auction ServicesKARSpin-Off6/28/2019Research Report
CortevaCTVADowDuPontDWDPSpin-Off6/3/2019Research Report
Kontoor BrandsKTBVF CorpVFCSpin-Off5/23/2019Research Report
AlconALCNovartisNVSSpin-Off4/9/2019Research Report
DowDOWDowDuPontDWDPSpin-Off4/2/2019Research Report
Fox CorporationFOX / FOXATwenty-First Century FoxFOX / FOXASpin-Off3/19/2019Research Report
WabtecWABGE TransportationGESpin-Off2/25/2019Research Report
CovetrusCVETHenry ScheinHSICSpin-Off2/7/2019Research Report
Equitrans MidstreamETRNEQT CorpEQTSpin-Off11/12/2018Spin-Off Brief
Arcosa, Inc.ACATrinity IndustriesTRNSpin-Off11/1/2018Research Report
Resideo TechnologiesREZIHoneywell InternationalHONSpin-Off10/29/2018Research Report
Livent CorporationLTHMFMC CorpFMCCarve-Out10/11/2018Research Report
Garrett MotionGTXHoneywell InternationalHONSpin-Off10/1/2018Research Report
FrontdoorFTDRServiceMasterSERVSpin-Off10/1/2018Research Report
Fortive A&S SegmentAIMCFortiveFTVSplit-Off10/1/2018Research Report
Elanco Animal HealthELANEli LillyLLYCarve-Out9/20/2018Research Report
KLX Energy ServicesKLXEKLX Inc.KLXISpin-Off9/14/2018Research Report
2019-10-01T08:23:22-05:00