Industrials

The Eight Big Spin-Offs To Watch For 2011 (AMR, MT, CVC, FST, FO, LORL, MOT, NOC, HHC, GGP, MSG)

2010 has been a positive year for the markets.  IPOs and secondary offerings have been plentiful, debt offerings have been plentiful, and restructurings continue.  Many spin-offs have been announced and will occur as we enter 2011.  This marks the return of an old trend that will make investors look forward to more deals in 2011 and beyond.

AMR Corp. (NYSE: AMR), ArcelorMittal (NYSE: MT), Cablevision Systems Corporation (NYSE: CVC), Forest Oil Corp. (NYSE: FST), Fortune Brands, Inc. (NYSE: FO), Loral Space & Communications Holdings Ltd. (NASDAQ: LORL), Motorola Inc. (NYSE: MOT), and Northrop Grumman Corp. (NYSE: NOC) are all either planning spin-offs or are considering them.  There is also a winner so far in 2010 in The Howard Hughes Corporation (NYSE: HHC) from General Growth Properties (NYSE: GGP).  We have provided some basic information and color on each below.

1. AMR Corp. (NYSE: AMR), the parent of American Airlines, has wanted to unload American Eagle for years. What has prevented a deal has been the bad economy and high fuel prices.  It was back in the summer that AMR disclosed that it had revived plans that could ultimately lead to a sale, divestiture, or even a spin-off.  If the airline sector remains in favor this tranasaction could finally occur in 2011.  AMR shares are trading around $7.75 and the 52-week trading range is $5.86 to $10.50.  AMR peaked above $35.00 in early 2007.  If this will assist in its attempt to regain a former glory, they will likely jettison the regional unit.

2. ArcelorMittal (NYSE: MT), the international steel giant, has recently confirmed that the stainless steel business will be spun off to shareholders.  The plan is to distribute shares in the first quarter of 2011 at a ratio of one share of the stainless steel business for every twenty ArcelorMittal shares.  With shares around $37.00, its 52-week trading range is $26.28 to $49.41.

3. Cablevision Systems Corporation (NYSE: CVC) has already spun off Madison Square Garden, Inc. (NYSE: MSG) in February 2010.  Now the Dolan family is looking at the same possibility for Rainbow Media.  In November, the Dolans announced that the board of directors gave authorization to explore a possible spin-off of Rainbow Media.  If this occurs, Rainbow Media would become a separate public company with its holdings being national programming, IFC, and Rainbow Network. Cablevision shares are very close to $35.00 and its 52-week trading range is $21.53 to $35.16.

4. Forest Oil Corp. (NYSE: FST) recently unveiled plans to offer up to $375 million in an IPO for shares of Lone Pine Resources Inc.  The offering is to help Lone Pine repay a $500 million promissory note to its parent Forest Oil.  The remaining shares will be spun-off to existing Forest Oil shareholders via a tax-free dividend a few months after the IPO.  Forest has a market cap of roughly $4.1 billion.  The Alberta, Canada-based oil and gas exploration company operates in Alberta, B.C., and Quebec in Canada and in the Northwest Territories.  With shares around $36.00, the 52-week range is $20.68 to $37.26.

5. Fortune Brands, Inc. (NYSE: FO) plans to jettison its three consumer businesses.  No more “General Eclectic” here.  Titleist is under the golf unit; the home and security unit includes MasterBrand cabinets, Moen, MasterLock padlocks, and more.  The core entity will be its Fortune Brands distilled spirits and its home and security unit and its golf products unit is up for grabs either by sale or spin-off.  With shares around $62.00, the 52-week range is $37.05 to $63.51.

6. Loral Space & Communications Holdings Ltd. (NASDAQ: LORL) has a couple of spin-off or divesting options summarized in November at Space News.  The first listed option was to take SS/L Holdings Inc. public in an Initial Public Offering.  Its satellite operations were put at being a sale of up to $100 million, but what that comes to for sure is unknown.  Loral is also considering its options for Telesat, the Canadian satellite operation where it holds a majority stake. Loral is not very actively traded and its near-$75 current price compares to a 52-week trading range of $26.35 to $85.16.

7. Motorola Inc. (NYSE: MOT) today will become Motorola Mobility Holdings and Motorola Inc.   The transaction is expected to be tax-free to shareholders and will be spun outside of the parent company entirely.  Investors will want to know that with a low share price, a reverse stock split is planned.  The existing expectation is a January 4, 2011 date. Motorola trades close to $8.45 and its 52-week range is $6.04 to $8.74.

8. Northrop Grumman Corp. (NYSE: NOC) had previously disclosed plans to unload its shipbuilding unit.  The company’s Huntington Ingalls Industries Inc. could end up in the hands of existing Northrop Grumman holders, it could be sold, or it could be divested in other methods.  The company’s review of strategic alternatives is underway. With shares above $64.00, its 52-week range is $53.50 to $69.80.

One of the more successful spin-offs of 2010 was The Howard Hughes Corporation (NYSE: HHC). This one came from General Growth Properties (NYSE: GGP) and it has risen steadily since its October launch. This company owns, manages and develops commercial real estate as well as residential and mixed-use real estate throughout the country.  It is comprised of 34 strategic assets previously held by GGP in master planned communities, operating properties, and development opportunities spread across 18 states.  Some of its key properties are Summerlin outside of Las Vegas and the Woodlands outside of Houston with many other recognized properties around the country.  Whether or not this one can keep performing in 2011 remains to be seen.

Each spin-off is its own special situation.  Many act to boost shareholder value, but some go awry.  The obvious answer to consider here is to watch the frequency of spin-off announcements.  If more than a few are successful, there will be others to follow.

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JON C. OGG

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