Post-Spin Buy for Parent on Value & Takeover Potential
Travis Perkins Plc (TPK LN) announced the Spinoff of its struggling DIY retailer Wickes stores in the UK, leaving the RemainCo with its growing professional home improvement offerings. The company's position as a leader in the space and its improved EBITDA margin profile makes it an attractive post-Spin takeover target for US home improvement players looking for international exposure. The Spin is expected in 2H 2020, and our valuation shows significant upside for the Parent ex-Spin.What's Happening?
Travis Perkins Plc (TPK LN), the largest builders’ merchant retailer, will Spinoff its slowing Wickes DIY business (Spinoff) into a separately listed company in the second half of 2020. This move will improve TPK LN’s (ex-Spin) EBITDA margin and debt profile to 11.7% and 2.3x in FY21E compared to 10% and 3x on a combined basis. This makes TPK an attractive acquisition target for companies like Lowe's Companies, Inc. (LOW) or a private equity player in the medium to long-term.
In addition, TPK’s Chairman is the takeover specialist Stuart Chambers (started November 1, 2017), the man credited for selling Britain’s largest chip designer Arm Holdings for £24bn to Softbank in September 2016. He was also involved in two other companies being taken over, as Chairman of Rexam (sold 2016) and CEO of glass manufacturer Pilkington (sold 2006). He also sits on the Takeover Panel, the governing body that approves of acquisitions in the UK and the same group that would oversee the approval of any takeover of TPK.
Management Rationale: The management believes the Wickes Spinoff will help reduce business complexity in the group and enable operational cost saving for both businesses.
The Edge View...
The Wickes DIY retail business has seen intense competitive pricing pressure on top of a consumer shift toward professional home improvement (do-it-for-me, DIFM) rather than do-it-yourself (DIY) models. This has prompted TPK to separate the business to focus on its trade construction materials distribution network moving forward. The continued involvement of takeover specialist Chairman Stuart Chambers also indicates the potential medium to long-term goal for the company to be acquired by a larger player in the home improvement and construction materials space.
Travis Perkins is engaged in buying, moving and selling building materials. Co. has four divisions: general merchanting, which supplies products for repair, maintenance and improvement projects as well as new residential and commercial construction; consumer, which supplies domestic building and decorative materials through its store network; contracts, which supplies products for use in construction projects, such as new road and rail infrastructure; and plumbing & heating, which delivers a proposition to installer and contract customers through an integrated branch network and online capacity, as well as being a wholesaler to trade distributors.
The Edge Group - Global Fundamental Catalyst Investing. The Edge provides investors with access to hidden corporate value from Global Special Situations using a pioneering approach to investments. Founded in 2005 by fund management and investment banking professionals to provide high quality, private equity-level research on Global Corporate Divestitures for the benefit of fundamental event-driven, growth and value-oriented investors in this difficult to track, but proven investment space.
The Edge will look to screen and analyze include Spinoffs; Reverse Morris Trusts; Squeeze Outs; Privatizations; Demutualization; Deep Discounted; Rights Issues; Rights Offering; Restructuring; Insider Purchases / Buying Change of Management / CEO Change; Deteriorating fundamentals; Post-Bankruptcy; Reorganization; Tender Offer; M&A Deals; Secondary Offering; Share Swap; Thrift Conversions; Share Buybacks; Activist; Mergers. All analyzed from a fundamental point of view.
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