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:
- Last October, Sealed Air Corporation (SEE) 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…
- 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.
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