The Edge Consulting Group, which issues regular reports on special situations, has recommended that its clients keep a close watch on Energizer Holdings, Unilever N.V., and Wyndham Worldwide Corp. because they are hovering above what ECG considers to be a great entry point. Energizer Holdings is going to split into two separately listed companies later this year, and ECG thinks that Unilever and Wyndham could be gearing up to spin off some of their divisions as well.
Energizer Holdings is the least speculative of the three stocks mentioned by ECG, since the split is almost definitely going to happen later this year. What makes the stock worth watching is the possibility that one or both of the divisions will get bought by one of its larger competitors. The household business (including the eponymous batteries that spring to mind) could be an acquisition target for Berkshire Hathaway, which already owns Duracell, or Spectrum Brands, which makes Rayovac and Varta brand batteries. The personal care business has even more possible buyers including Colgate-Palmolive, Unilever, Reckitt Benckiser, Church & Dwight, and Henkel and Beiorsdorf.
ECG sees a 7% upside to current valuations if the two divisions remain independent and a 45% upside if they get bought, but recommends that investors wait for the stock to fall to $115 before buying (currently trades at $129).
Unilever says that it doesn’t have any plans to spin-off its Spreads division, but it is restructuring the business so that Spreads operates as a separate entity from the rest of the foods business. The stated purpose is to give Spreads, a high margin low growth division, dedicated management to improve growth. But ECG thinks it’s more likely that Unilever wants to sell the Spreads business (or at least wants to have the option) and hopes that increased transparency into the business will fetch a higher price. ECG doesn’t have a specific entry point in mind just yet, but they’re watching the execution on the restructuring closely.
ECG points to Wyndham Worldwide’s timeshare business as an excellent candidate for a spin-off because it’s capital intensive and accounts for about half of total revenue. They point to the decision to separate Marriott Vacations Worldwide from Marriott International in 2011, which has resulted in 185% and 316% to-date returns respectively, compared to 76% returns from the S&P 500 over the same timeframe.
ECG’s thesis on Wyndham rests largely on CEO Stephen Holmes, who they say has “an ideology of creating value for shareholders.” They’re not claiming to have picked up on some signal that Holmes is planning a spin-off, but believe the move is so compelling that he is likely to reach the same conclusion. They recommend current shareholders buy on dips and say that $75 is a good entry point for new investors (currently trading at $84).