Spin-Off Research In the News

CVR Refining Seeks $520 Million in Initial Public Offering

Posted by Joe Cornell, CFA on Thu, Jan 10, 2013 @ 11:01 AM

spinoff, spin-off, joe cornell

CVR Refining Seeks $520 Million in Initial Public Offering

1-8-2013 | By Jim Polson

     CVR Refining LP, the U.S. oil refiner controlled by billionaire investor Carl Icahn, increased the fundraising target for its initial public offering 73 percent to as much as $520 million.

     CVR Refining will offer 20 million units for $24 to $26 each, the Sugar Land, Texas-based partnership said in a filing with the U.S. Securities and Exchange Commission today. The offering values the company at as much as $3.84 billion, according to Bloomberg calculations. Gross proceeds may reach

$598 million if banks underwriting the sale exercise options to buy another 3 million shares, according to the filing.

     CVR Energy Inc. announced plans Oct. 1 to put its refineries into a master-limited partnership and sell units, after failing to find a buyer for the plants. Icahn Enterprises LP, which took control of CVR Energy last year, said it may buy as much as $100 million of the refining units, according to the filing. Master-limited partnerships don’t pay corporate income tax, leaving more cash for payments to holders.

     “These energy limited partnerships are all about repackaging assets in a tax-efficient structure so the limited partnership can pay out a fatter yield,” said Joseph Cornell, an analyst for Spin-Off Advisors LLC in Chicago, who rates CVR Energy shares at hold. “Retail investors are hungry for yield and bid them up.”

     CVR Refining owns a 115,000 barrel-a-day refinery in Coffeyville, Kansas, and a 70,000 barrel-a-day plant in Wynnewood, Oklahoma, as well as oil pipelines, tanks and a fuel- sales business, according to the filing. In October, it estimated gross proceeds of the offering at $300 million.

     Partnership Payments

     CVR Energy will own 86 percent of the partnership and control it through its general partner after the IPO, according to a statement today. The company also controls CVR Partners LP, a partnership that makes fertilizer.

     Master-limited partnerships that make regular distributions have been used by pipeline owners including Kinder Morgan Inc.

and Williams Cos. to raise cash and retain control of businesses.

     While pipelines harvest cash from standard fees on shipping volumes, refiner profit depends on the margin between the cost of crude and the price of refined fuels such as diesel and gasoline. Based on U.S. benchmark oil prices, the so-called crack spread ranged from $18.82 to $36.97 a barrel last year.

     CVR Refining’s “cash distributions, if any, will not be stable,” according to today’s filing. CVR Energy fell 0.2 percent to $42.56 at 10:12 a.m. in New York. The shares have doubled in the past year.

     ‘Trust Me’

     “It puts the limited partnership investors in a ‘trust me’

position,” Cornell said in an e-mail.

     Proceeds from the unit sale will be used to buy back $255 million of debt and fund some maintenance and equipment expenses through 2014, according to the filing.

     Credit Suisse Group AG, Citigroup Inc., Barclays Plc, UBS AG and Jefferies Group Inc. are handling the sale, according to the statement.

     The shares will trade under the symbol CVRR on the New York Stock Exchange.


--Editors: Tina Davis, Jasmina Kelemen

To contact the reporter on this story:

Jim Polson in New York at +1-212-617-5293 or jpolson@bloomberg.net

To contact the editor responsible for this story:

Susan Warren at +1-214-954-9455 or


CVR Refining Seeks $520 Million in IPO


CVR Refining, LP Announces Launch of Initial Public Offering 



*Updates with comment from analyst in fourth paragraph.


Tags: CVRR Carve-Out

Stocks, Up 3.2% in 2013, Again Hit a 5-Year High

Posted by Joe Cornell, CFA on Mon, Jan 14, 2013 @ 09:01 AM

Joe Cornell, Spin-Off Advisors, Spin-Off Research, Spin-Off, spinoff, Carve-out, IPO

The Trader | SATURDAY, JANUARY 12, 2013


IN 2012, IT PAID TO INVEST in spinoffs. The Bloomberg U.S. Spun-off Companies Index of 20 names with a market value of at least $1 billion rose 44% last year.

Monday, trading is expected to begin in two new companies spun off after the close Friday from the entertainment conglomerate Liberty Media (LMCA), 40% controlled by its chairman, John C. Malone, through his super-voting B Class Liberty common stock.

The pre-split Liberty A shares ended at a 52-week high of $124.03 Friday. But Joe Cornell, head of Spin-Off Advisors and a veteran of the field, says the sum value of the two new companies could be 9%-17% higher: $135 now and potentially as much as $145 down the road. Much of the gain, he posits, would come from the spinoff's Starz (STRZA) component, an entertainment company that provides premium subscription video programming to cable operators and other distributors.

Cornell thinks Starz could fetch $18.50 eventually, about 30% above the implied closing price Friday of $14.20. Typically, a spinoff is done when one or more of a company's disparate divisions isn't fully reflected in the conglomerate's value. Starz offers 17 premium channels, including Starz and Encore, whose subscriptions are increasing at annual rates of 8.5% and 2.8%, respectively.

Starz will become a pure-play entertainment company and should be valued like its peers, Cornell argues. His value per share is derived from using a multiple of seven on Starz's enterprise value, or stock-market cap plus net debt, to estimated Ebitda, or earnings before interest, taxes, depreciation, and amortization. That's conservative, compared with the 9.4 times average of the company's peers, which are larger.

The caveats are that Starz will become more leveraged after the split, and that competition from new entertainment platforms and services could hurt subscriber growth.

The second spinoff, temporarily dubbed Liberty Spinco (LMCAD), will contain all the other businesses of the old Liberty Media, such as the Atlanta Braves baseball team; TruePosition, which provides technology for wireless-devices location services; a 49.8% stake in Sirius XM Radio (SIRI); 25% of Live Nation Entertainment (LYV); plus small stakes in numerous well-known media and communications companies.

Cornell values the Spinco portion at $116.50. That's about 6% higher than Friday's $109.83 close of Spinco's new shares, which traded last week on a when-issued basis. Starz didn't trade when issued last week, but by implication—subtracting the Spinco price from the old Liberty Media price—the market values it at about $14.20.

While this isn't part of the fundamental investment theme, "a lot of investors believe that Starz could eventually end up inside a much bigger entertainment company with deep pockets," Cornell says.

Regardless of how it plays out, he adds, "the sum of the parts is usually greater six months down the road, compared to the pre-spin price."

Just to confuse things further, on Jan. 22, Liberty Spinco's name will revert to Liberty Media and its A shares will begin trading under the old symbol of LMCA.

Tags: Liberty Media Spin-Off