The Naming Of ITT’s Spins

by: Spin Doctor - July 18th, 2011   5 Comments

One of my favorite and often overlooked parts of examining spinoffs is the choice of name for the new entity. Generally, this decision requires zero thought as there is a division or some well known product making the choice obvious, such as in the case of Madison Square Garden or Babcock & Wilcox (well…maybe that one isn’t the best example). However, occasionally management needs to flex its creative muscles (by which I mean hire some pricey ‘brand strategy’ consultants) in order to come up with a splashy new name that evokes confidence, pride and numerous other adjectives within a single word. This is how we end up with WPX Energy and QEP Resources. Yikes. Overall, I would say I am unimpressed, but every now and then I am surprised by a unique or clever name such as the recent Howard Hughes Corporation. How random was that one?

Well, you can add ITT’s (ITT) new names for its two upcoming spinoffs to that list, as ITT announced that its water technology company will be renamed Xylem and the defense business will be called ITT Exelis. The core industrials unit will retain the ITT moniker and ticker. Apparently, somebody at ITT really loves the letter ‘X’.

Xylem is expected to trade with the ticker XYL and in case your high school biology is a bit rusty, the xylem is the tissue that transports water in plants. How fitting. Exelis, on the other hand, is completely made up and was chosen because it “is an energetic name…[which] signifies the expeditionary spirit, exceptional foresight and strong commitment to proactively anticipating and adapting solutions to our customers’ most critical problems.” All of that packed into just six letters – amazing. Exelis will trade under the ticker XLS and the company is rumored to be staying put in its current location in McLean.

Form 10′s for the new companies have also been released and a wealth of information, including the aforementioned SEC filings, related company presentations and news releases can be found here. Or you can just click here for Exelis’ Form 10 and here for Xylem’s. The spin appears to be on track for completion by the end of the year and we will keep you updated as more information is released. For our earlier post on ITT, click here and here are some articles from Dealbook and the Deal Journal discussing the move and mourning the loss of the corporate conglomerate.

Readers – any company names that you love or hate?

Disclosure: Author holds no position in any stock mentioned.

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Ralcorp Posts Another Hit In Its Serial Spin Parade

by: Inelegant Investor - July 14th, 2011   1 Comment
The Post Cereals logo.

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Ending a short-lived marriage, Ralcorp(RAH) announced plans today to spin off its Post Cereals business as an independent company.  The company hopes to complete the spinoff in the next 4 to 6 months.  Ralcorp. which itself was spun out of Ralston Purina in 1994, purchased the Post Brands from Kraft(KFT) in August 2008. Ralcorp, which will continue to be a leading producer of private brand foods will improve its balance sheet by issuing $1.1-$1.2Billion in new debt for Post and keeping the cash for itself. Post Brands will have to sell a lot of Fruity Pebbles and Honey Bunches Of Oats to service that debt. Ralcorp’s chairman will move to Post, though the company is still searching for a CEO to lead the new company.

Ralcorp has been pursued for some time by Conagra(CAG). It will be interesting to see Conagra’s response to today’s news.

Disclosure: The author owns no position in any stock mentioned

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Pfizer Ponders A Move

by: Spin Doctor - July 14th, 2011   1 Comment
Image representing Pfizer as depicted in Crunc...

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A few months ago, pharma giant Pfizer (PFE) got a boost when Sanford Bernstein analyst Tim Anderson (and a few other street colleagues) mentioned that company management was open to spinning off or selling parts of the business.  This set off a flurry of reports analyzing potential castaways with estimates ending up as high as 4 divisions shed representing over $20b of revenues. Not surprising, given that Pfizer is a perfect target for this analysis after expanding and swallowing up numerous other companies.

Just a few months later and it seems that while the essence of their prediction was correct, the magnitude might have been a little exaggerated as Pfizer announced last week that it was considering strategic options for only its Animal Health and Nutrition businesses.  After a lengthy review of their portfolio, the company and CEO Ian Read determined that only these businesses did not fit with core operations and would benefit from operating ‘outside the company’. As a result, it looks like the Consumer Products and Established Products divisions will be staying put.

The Animal Health division had revenues of $3.6b in 2010 and focuses on the development and manufacturing of products to prevent and treat disease in…wait for it…animals, such as livestock and pets. Big surprise there. The Nutrition division had revenues of roughly $1.9b in 2010 and provides formula and nutritional products to infants and young children. Both units have strong international presences and some growth, but combined represent less than 10% of the company’s sales.

The market was somewhat disappointed with the announcement as many investors were hoping for a more aggressive divestiture which included the aforementioned consumer and established products divisions. Not everyone is giving up hope on a bigger move though, with some viewing this announcement as just a ‘first step’.

One option for Pfizer could be to sell the units and some initial guesses indicate that a sale could bring in a nice haul. Credit Suisse analyst Catherine Arnold estimated the animal health unit could be valued at $12 billion and J.P. Morgan analyst Chris Schott said the nutrition unit could be worth $6.5-$8b in a separation from Pfizer. Another alternative could be a spinoff similar to Bristol Myers’ (BMY) spinout of Mead Johnson (MJN) which has fared very well. A spinoff could allow Pfizer to retain a stake in those operations and benefit if they succeed.

The company has hired outside advisers including JP Morgan and Morgan Stanley to evaluate its options, but don’t get too excited – no further announcements are expected until 2012 with a transaction following 12-24 months afterwards. We will keep you updated as more information is released.

Disclosure: Author currently holds no position in any company mentioned.

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ConocoPhillips To Refine Itself Into Two Companies

by: Inelegant Investor - July 14th, 2011  
Marland Oil Company

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ConocoPhillips(COP), one of the world’s six “supermajor” oil companies has decided that the benefits to vertical integration are not all they’re cracked up to be. The company announced today that it will be spinning off its refining business in the first half of 2012, leaving it as a pure-play exploration  and production business. At the time of the spin CEO James Mulva will retire.  As we see with many spinoffs, Conoco is a serial spinner, having itself been spun off from Dupont(DD) over a decade ago.

The split follows the same script as the recent Marathon spinoff and will create both the largest independent US refiner and the largest independent US E&P.  The market’s initial reaction to the news is quite positive, with the stock up over 9% in premarket trading.

Disclosure: The author has no stake in any stock mentioned

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