Upcoming Interesting Spin-offs

There are some big and interesting spin-offs coming up within the next couple of months.

Liberty Media

Liberty Media (LMCA) is spinning-off Starz, the premium cable channel in mid-January. After the spin-off, Starz is looking to sell itself. In fact, Liberty is already sending feelers out to potential interested parties such as CBS, Fox, Viacom and Univision.

Barron’s had an interesting sum-of-parts valuation of Liberty couple weeks back. It valued Starz at $125, about $15 above the Friday closing price of $110. I personally have not valued each of the businesses, but there are two potential big risks here:

  • The majority of Liberty’s valuation is based on Sirius. 
  • Netflix outbid Starz to carry Disney content after 2016. This could have an effect on Starz valuation going forward. Starz is trying to develop more original content to offset this loss.

There are a lot of believers in Liberty such as Warren Buffett and David Einhorn. However, both those investors were holding Liberty before the recent run up of the stock price.

Pfizer

Pfizer (PFE) is spinning-off its Animal Health Unit, Zoetis. It plans to launch a $4 billion IPO in January or February, valuing the Zoetis at around $20 billion. After the IPO, it plans to distribute the remaining 80% to shareholders.

 Check out the latest S1 here

I am avoiding holding Pfizer because

  • I am not a big fan of big pharmaceutical companies. They have to keep coming up with new drugs to maintain and grow revenue.
  • Zoetis valuation, even at $20 billion, will be around 10% of Pfizer’s market capitalization.

Although, Zoetis has been growing, it looks expensive from a brief reading of the S1.

News Corporation

News Corp (NWSA) is spinning-off its publishing unit early next year. There has not been much new information on this spin-off except it named Robert Thomson the CEO of the company.

Disclosure: I do not own NWSA, PFE, or LMCA

Dean, Susser, CommonWealth, News Corp

Dean Foods

Dean Foods (DF) earnings are coming out tomorrow. The hope is that they disclose the potential sale of Morningstar in the report. The stock has been slowly going down. I still think it is undervalued. 

Interestingly, there is support on the stock today as a Barrons article came out with a favorable article. Their argument looks very similar to mine. Basically, it is undervalued if you factor out WhiteWave. Check out the article here.

Here is my valuation of Dean. The only difference is that I feel Dean will not use the full proceeds from the Morningstar sale to pay off debt. 

Susser Holdings

Susser Holdings Corporation (SUSS) came out with earnings that beat expectations. The market obviously likes the results and forward guidance.  The shares up more than a dollar on a down day. Read the earnings here.

I continue to hold a small position in the company with a target price around $47. I think the spin-off of Susser Petroleum Partners LP (SUSP) will accelerate the growth over the coming years. However, it is a volatile business so i am keeping limited exposure. 

My article on Susser is here.

Commonwealth REIT

Commonwealth REIT (CWH) came out earnings that beat expectations. The shares are down a little today. 

The company is very undervalued, but I do not trust management. I have been very critical about management and wrote a scathing piece on SeekingAlpha about the need to switch management. 

I have been in touch with smaller investors as well as bigger firms that hold millions of shares about possibly doing something to increase shareholder value. If you are a shareholder get in touch with me personally. 

I participated in this mornings conference call hoping to ask a question or two. However, I never got the opportunity. Anyway, I suggest investors read the call transcript as it was very funny. Lots of frustrated investors. I will post a link on the comments once it is up. 

The best way to play CommonWealth is buying long term call options. Read the article here.

News Corporation

News Corp (NWSA), one of the stock picks of HypeZero10, came out with earnings that beat expectations and is up today. News Corp is top holding of Donald Yacktman. His firm holds 80,556,339 share of the company as of September 30, 2012. He did reduce his position by 300,000 from June 30. 2012.

It is spinning-off its publishing unit and buying back shares. Here is the info about the spin-off:

On June 28, 2012, News Corporation announced that it intends to pursue the separation of its publishing and its media and entertainment businesses into two distinct publicly traded companies. The global publishing company that would be created through the proposed transaction would consist of the Company’s publishing businesses, its education division and other Australian assets. The global media and entertainment company would consist of the Company’s cable and television assets, filmed entertainment, and direct satellite broadcasting businesses. Following the separation, each company would maintain two classes of common stock: Class A Common and Class B Common Voting Shares. The separation is expected to be completed in approximately one year from the date of announcement. In addition to final approval from the Board of Directors and stockholder approval, the completion of the separation will be subject to receipt of regulatory approvals, opinions from tax counsel and favorable rulings from certain tax jurisdictions regarding the tax-free nature of the transaction to the Company and to its stockholders, further due diligence as appropriate, and the filing and effectiveness of appropriate filings with the SEC. There can be no assurances given that the separation of the Company’s businesses as described will occur.

Here are the quarterly results

Disclosure: I am long DF, SUSS, CWH. I do not own NWSA.