Summary

Jim Osman began by addressing what a spinoff is and how to get value from these catalyst events. A spinoff is a demerger breakup, a separation of one company splitting into two or more with the hope that the sum of the parts is greater than the whole. Sometimes, however it might just be better to take one of the companies, the parent, or the spinoff. Some companies split their two distinct businesses and spin them off for greater valuations. The Edge looked at spinoffs for the last 20 years in a study with Deloitte and found that 30 to 35% of post-spinoff pure play companies, at around the two-year mark will get taken over. As a result, there's an argument for just holding these spin-off companies; they can be fantastic performers and often the street doesn't cover them. They appear in accounts and are just sold because investors don't know what they are. You get these shares, whether you like them or not, and can be too small for some to hold, they might not in their sphere and so they just get sold. This feeds into technical analysis as you see investors getting very low prices because of this false selling. However, still the most overlooked area of analysis is the quality of management. Frequently when companies are spun off, they get new management. Some managers will have a history of value creation; some will be motivated by incentives and equity compensation; some of them will be good traders of their own stock and good buyers of their own stock and these are the people to watch. The Edge analyse insiders or company directors in detail.

Jonathan Morgan then moved on to the first idea, Vimeo (VMEO), a recent spinoff. It is an optimized online video streaming site that allows users to upload and promote their videos to a high degree of customization. Vimeo was recently spun off from IAC on May 25th. IAC is run by Barry Diller who has a long track record creating value for shareholders and is his eighth spinoff. That list includes Match Group last year, Expedia Group, Lending Tree, and even ANGI Home Services. Match Group is up 50% since the spinoff on July 1st, 2020. Barry Diller acquires off the beaten track web assets, he rehabs and flips them and eventually spins them off and creating them as household names. With Vimeo’s separation from IAC, it is now a pure play listed company and The Edge believe there's a good value proposition there in the SaaS and cloud markets which warrants it to trade at a higher multiple than many of its peers now. The stock price has jumped some 15% in the past weeks, but Vimeo is still trading at a slight discount to its peers. The global pandemic induced business environment has increased the appetite for video consumption, Vimeo is one of these businesses primed to benefit from increased traction through their videos for enterprise use and other entertainments as well. There is no debt on the balance sheet being spun off and there's a multi-year expansion predicted going forward, plus a great management team, including Anjali Sud promoted to CEO in 2017 and turning Vimeo from a loss-making, College Humour platform to a listed $8 billion company. It's an under-covered name, so while the stock has moved up some 15% in the recent weeks The Edge still see 30 to 30+ percent upside from base case, with a bull case target price closer to 50%.

Jonathan then moved on to the next idea, a special situations idea. Dun & Bradstreet (DNB). They offer information on commercial credit as well as reports on businesses and they were only recently brought back onto the market summer of 2020. They are the most notably known for their DUNS number which generates business information reports for more than 100 million companies around the globe. DNB is a high conviction because a smart insider is buying into the stock who has a strong track record. One major positive indicator when it comes to insider buying, especially for value creation is when the insider of a company buys shares in the market soon after the IPO, and the CEO at the time, received about 200,000 shares at the time at about 22 dollars a share, and still bought an extra 40,000 shares at $26, spending about a million bucks at the time. The CFO followed his lead. Anthony Jabbour is the CEO, and is also the CEO of Black Knight Inc. When he came on board for a Black Knight post spin, he bought shares in BKI as well and if you look at the stock price, it jumped post spin and when he's bought at the dips in the forties, fifties & sixties, the stock price has jumped in BKI. He has a strong track record, and this is not a small portion of this wealth in DNB. In fact, roughly close to 60% of his net worth is in Dun & Bradstreet. In early June 2021 there has been repeat insider buying from Mr. Jabbour and CFO Bryan Hipsher, making this their third open market purchase (Nov 2020 and Feb 2021) since its IPO last summer (Jul 2020). Plus, DNB has spent the last 9 months transitioning its enterprise resource planning (ERP) software to a modern SaaS cloud platform, which will help drive growth going forward. Additionally, there have been some recent key hires for its Chief Product Officer and Chief Technology Officer. From a base case scenario, close to 40% upside from a $30 target. A bull case could be north of that. Some bigger funds are starting to build a position around this $21 level and The Edge believe this is a good entry point for someone to get involved in Dun & Bradstreet.

Finally, Jonathan discussed an upcoming spinoff: Prudential PLC (PRU). This could be a great opportunity as this is going to be a rare transatlantic spinoff. Not a lot of investors, especially in the US, are picking this up. The parent company, Prudential, a European player is going to stay listed in the in the UK and then the spinoff is going to be only listed in the US so it's not going to have a FTSE listing, or an LSE listing, a very unusual situation when it comes to spin. This spinoff has an activist involved, Third Point. They pushed for the breakup and they're going to be spinning off their US insurance and investing arm, and that's going to be called Jackson Financial Inc. Why this could be interesting is that the technicals for this will be all over the place due to the nature of the taxation side of it. Plus, an interesting chairman coming on board, the former mastermind for MetLife, with that spinoff. It could see some unique short-term selling pressure as you see a lot of UK focus only funds getting shares of this, potentially forcing indiscriminate selling pressure, this could lower the price to such a way that creates an opportunity to get involved. The remainco also looks interesting with the high growth division of their Asian side of the business as well. They are going to break up in the next couple of couple of months and this could be one of the best opportunities for this on the spinoff calendar for 2021.

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