Google’s Motorola Purchase Nears Completion

by: Spin Doctor - February 14th, 2012  

With both the DOJ and EU regulatory body blessing the transaction, Google’s (GOOG) purchase of spinoff Motorola Mobility (MMI) is finally close to fruition. No small feat given the recent failures of some other large deals such as ATT’s (T) takeout of T-Mobile and the NYX/Deutsche Boerse combo. Motorola’s hefty patent portfolio appears to have been the impetus behind the deal and the regulatory bodies insisted that they will be closely monitoring the situation in order to ensure the patents are used and licensed out appropriately. The deal still requires approval from various other countries in which Motorola operates, most notably in China, but the expectations are that the deal will close in the coming weeks. I don’t really partake much in merger arbitrage (for various reasons), but according to SINletter’s table, the deal is still offering a ~7% annualized return, assuming it closes by the end of March. The spread did tighten a bit after this news broke though.

While I imagine many investors have already dumped their shares, buyers of this spin have fared quite nicely as MMI opened at ~$25.60 on its first day of trading. Analysts often tout the potential to be acquired in more digestible pieces as a spinoff benefit. Typically, this requires some patience to realize though as certain tax-free benefits of a spinoff can be lost if bought out too quickly. Some other recent spins where analysts have highlighted potential takeovers include Ntelos (NTLS) and stainless steel company Aperam (APEMY). Any other ones on your radar?

Disclosure: Author holds no position in any stock mentioned.

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Xylem, ITT Spinoff, To Join S&P 500

by: Inelegant Investor - October 26th, 2011  

ITT’s(ITT) long awaited spinoffs, Xylem(XYL) and Exelis (XLS) are set to be distributed to shareholders on 10/31.  Standard & Poor has announced that Xylem will take ITT’s place in the S&P 500 index.  Both Exelis and ITT will join the S&P MidCap 400, replacing Eastman Kodak(EK) and Kindred Healthcare(KND).  Lumos Holdings, being spun out of NTELOS(NTLS) on the same day, will be added to the S&P SmallCap 600.

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To Wire Or Not Wire – That Is Ntelos’ Question

by: Spin Doctor - October 24th, 2011  

Avoid trading on certain days? Superstitious at all? Management at Ntelos Holding (NTLS) certainly are not as the company plans on separating its wireline and wireless businesses this coming Halloween (October 31st). Maybe it was just time to close the transaction after first announcing it last December. For those who are unclear about the differences between the two companies, a wireline company utilizes actual ‘wires’ or fibers through which it offers its services.

The wireless business will retain the Ntelos name while the new wireline company will be named Lumos Networks. Lumos, which will also include the recently acquired FiberNet business, focuses on the ‘Mid-Atlantic’ region which includes areas such as the Virginias and Pennsylvania. Lumos reports under two segments: Competitive, a network service provider, and RLEC, a traditional rural incumbent local exchange carrier. The company is more focused on its ‘Competitive’ bucket because it believes that its highest growth customers include businesses, government and carrier customers. The RLEC segment is expected to contribute steady cash flow to the operation.

Lumos’ customer base is one of the underlying reasons for the split as the wireless business is mainly focused on individual, retail consumers. Revenues for the wireless business have grown over the past 5 years although year to year has been rocky. The same can be said for the subscriber base as the company currently has ~430K subscribers or roughly the same amount as when the spin was announced. A big chunk of its business is based on an agreement with Sprint, to which it is the exclusive provider in the region. The high level of concentration could be a concern although the agreement is in place until 2015.

For additional details on the new companies – including financials, details on executive compensation (it appears the executives will be receiving nice amounts of stock) and in depth descriptions of the businesses (and respective strategies) – take a look at Lumos’ Form 10 and at some of Ntelos’ investor presentations about the transaction here (when the transaction was first announced) and here (more recent – September 2011). Analysts seem to like the move with the usual ‘new companies will make better acquisition targets’ argument being tossed about.

As a result of the spin, Lumos will incur ~$340m in new debt, most of which will go to Ntelos in order to pay down debt. Immediately prior to the spin, the company plans on executing a 1 for 2 reverse stock split after which shareholders will receive one share of Lumos for every share of Ntelos owned. Lumos will trade on the Nasdaq under the ticker LMOS.

Disclosure: Author holds no position in any stock mentioned.

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