Cleaning Up The Table: Sealed Air, Fiesta Restaurant Spinoff Plans Are No More

Even once a spinoff is announced it’s not a given that it will be completed. Things change – the company can change its mind, a buyer could emerge and so on and so forth. It’s really not surprising to see a bunch of sales in an environment of rich valuations. Although we try our best to stay on top of the news, here are a couple of (late) updates to our ‘Upcoming Spinoff‘ table where previously announced spins have since been scrapped:

  1. Last October, Sealed Air Corporation (SEE)Β announced plans to spin off its Diversey Care business along with its food hygiene and cleaning business into a ‘New Diversey’. The idea was to make two focused companies – one high margin company focused on selling packaging solutions (literally in many cases sealed air) and the other focused on hygiene. Despite the announcement, many thought a sale was likely for the unit because valuations were strong and Sealed Air had purchased the unit rather recently for a high price (over $4b) potentially limiting the tax leakage. In February, the rumored buyer was Henkel (HENKY), but ultimately it was private equity firm Bain Capital walking away with the unit for a cool $3.2b. The deal is expected to close in the second half of the year. While the proceeds were less than many expected, Sealed Air will still net an expected $2.5b to pay down debt, buy back shares and fund new growth initiatives. Of course, the deal also means the proposed spinoff is off the table. Another one bites the dust…
  2. Fiesta Restaurant Group (FRGI) was once a high-flying, ‘next Chipotle’ (at least pre-E coli) spinoff that has since fallen upon hard times. The company operates two brands – Pollo Tropical and Taco Cabana – but growth has stalled, margins have shrunk and the company is currently engaged in a bitter battle with activist firm JCP Investment Partners (no connection to JC Penney as far as I can tell) over its strategy and leadership. Last year the company had planned on spinning off its Taco Cabana plan, but that idea got scrapped amidst the poor performance and a ‘challenging environment’. The company recently completed a strategic review in which no buyer was found, but another conclusion was to officially put the spinoff idea to bed…again. Although the spinoff is gone, this should still be a fun one to watch. Given the success of other activists, I was a bit surprised to see the firm going to the mat for a mere two board seats, especially when they own over 8% of the stock. The shareholder meeting is June 7th so mark your calendars.

Disclosure: Author holds no position in any stock mentioned.