Exelis and its Spinoff Vectrus

Exelis Inc (XLS) is an aerospace and defense contractor that was originally spun off of ITT Corporation (ITT) on 10/31/2011, and now Exelis is following suit by spinning off its shrinking mission systems business line into a new company called Vectrus (VEC) later this summer or early fall.  This is the classic move to separate the declining business to highlight the attractive remaining business.  Exelis will be more of a pure play aerospace and defense products contractor focused on a few select growth sectors.  Vectrus will be a government services defense contractor with falling revenues, but strong cash generation due to the low capital requirements and a variable cost structure.

Both Exelis and Vectrus will benefit:

• Exelis benefits by shedding the underinvested services business which is experiencing severe declines in revenue due to budget constraints and the draw down of troops in Afghanistan.  The mission systems business is weighting on the rest of the business and masking the improved growth profile of Exelis's C4ISR segment and other growth initiatives, giving the remaining business a higher multiple.
• Vectrus is similar to other recent spins in the government services space (Engility Holdings & SAIC), declining revenues in the near term is less of a problem than it appears due to the low fixed costs, most of their costs are variable and attached to specific contracts.

With increased geopolitical tension defense contractors could once again see their revenues pick up from cyclical lows and Exelis represents an attractive event driven way to invest in that theme.

Vectrus
At the time of the Exelis spinoff from ITT, mission systems was the growth business and the rest of the business was flat or declining, times have certainly changed.  Shortly after the spinoff from ITT, defense spending came under a microscope with budget sequestration and the draw down of troops in Afghanistan.  In 2013 Vectrus had $1.5B in revenue with 100% of that coming from the U.S. Federal government, a full 92% from the U.S. Army, and 34% of 2013 came from Afghanistan which is quickly going away.  Revenues are expected to be down 25% in the mission systems business in 2014, with additional downward pressure in 2015.

Vectrus will operate in three main business lines: base operations (majority of the revenue), logistics, and network communications.

Major contracts include (69% of 2013 revenue):

1. Kuwait Base Operations and Security Support Services (K-BOSSS) contract for Camp Arifjan: Base operations contract for one of the largest bases in the U.S. Military, services include: medical services, postal and maintenance, public works, transportation, and emergency services
2. Operations, Maintenance and Defense of Army Communications in Southwest Asia and Central Asia (OMDAC-SWACA) contract: Network communications contract expiring in 2018 supporting the O&M of the Army's largest network from locations in the Middle East.
3. Logistics Civilian Augmentation Program (LOGCAP): Logistics contract where Vectrus is a subcontractor for certain task orders, the subcontracting agreement ends in 2018
4. Kuwait based Army Prepositioned Stocks-5: Logistics contract storing and supporting a wide range of military equipment and supplies.

Despite the industry headwinds, Vectrus can be an attractive business due to its low working capital requirements, much of their employment base are subcontractors attached to single contracts, as the contracts wind down so does a lot of the expense base.  Operating margins aren't great, at 4.0-4.5%, but with a renewed strategic focus on the business (classic spinoff reasoning) there will likely be some additional restructuring and cost cutting in the months after the spin is completed.

Leading Vectrus will be Ken Hunzeker, he has been the president of the mission systems business going back to the ITT/XLS spin, and is in for a nice raise.  Slightly more interestingly, Lou Giuliano will become the Chairman, he's the former Chairman and CEO of ITT and ran what would become Exelis at ITT for 8 years before becoming the President and COO of ITT in 1998, so he's intimately familiar with the business and the defense industry cycles.

Like many spins, Vectrus will be take out debt in order to pay a dividend back to the parent, here they're targeting 2.5-3.0x EBITDA, or approximately $130-150MM (although that's been a moving target down recently).  Government services businesses generate a lot of cash, I view debt (as long as its reasonable) as a positive here, management will likely be focused on paying down the new term loan and potentially refinancing to a better rate once the company becomes more seasoned.

Vectrus should have EBITDA of $50MM in '15 EBITDA, assuming they max out the debt at the 3x range, and putting a discounted 7x EV/EBITDA multiple on it gives you $200MM in market cap, a small slice of the $3B combined Exelis market cap.  I would imagine there will be some selling once the spin appears in Exelis investor's accounts as it will be a small unwanted orphan (it's worth about $1 per XLS share), so one strategy would be to wait for the spinoff to occur and settle out a bit before snapping up Vectrus shares on the cheap.

Exelis
Exelis has identified four "Strategic Growth Platforms" in which they want to focus and invest going forward: (1) Critical Networks;  (2) Intelligence, Surveillance and Reconnaissance Systems & Analytics; (3) Electronic Warfare; (4) and Composite Aerostructures.  The Vectrus spin allows Exelis to appear more attractive to investors, post-spin it will have higher margins and a diversified revenue base less focused on the Department of Defense.

While top line revenue is down double digits YoY for the combined Exelis, the majority of the decline is the Vectrus business while the rest of Exelis is mostly flat with growth expectations going forward that should deserve a higher multiple.

Pension Liability
When Exelis was spun off of ITT, many called it a pension plan with a defense business attached to it, and that would have been a fair assessment.  Exelis has made significant progress on the pension (~$1.3 billion unfunded position as of the last 10-Q) and will retain and continue to service it after the spin.  The company has also frozen the pension plan of all future benefit accruals effective December 2016 and expects it to stop needing to make additional contributions to the plan after 2017.

Continued low interest rates have plagued companies with large pension plans because it lowers the discount rate at which a defined benefit plan calculates its future liability.  The lower the discount rate, the more current assets the plan needs to meet the future pension liabilities.  Tucked away in a transportation and student loan bill (MAP-21) was a pension funding relief provision that is likely going to get extended, it will reduce the amount Exelis will be required to contribute to its plans in the next several years from $225MM annually to $150MM.  This gives time for interest rates to normalize (bringing the discount rate up) and may reduce the overall contributions necessary by Exelis.

Post-Spin Cash and Capital Allocation
Vectrus will be paying Exelis a dividend of ~$150MM upon the spinoff giving the parent company amply liquidity when you consider the unused commercial paper program and credit facility with very little net debt.  Exelis anticipates maintaining their current quarterly dividend (2.5% yield), and could return additional capital to shareholders with their share repurchase program.  The flexible balance sheet also allows them additional room to invest in their Strategic Growth Programs and bolt on some smaller acquisitions like they recently did with the Orthogon airport management business.

Exelis Valuation

To value a post spin Exelis I added the $1.3B pension liability to the net debt, along with the $150MM dividend from Vectrus, subtracted out the $50MM in EBITDA that Vectrus is expected to earn in 2015 and then added back the pension contribution to EBITDA.  If Exelis were to be valued at 8x this adjusted EBITDA measure, I come up with a ~$24 price target for the remaining business.  Add the additional $1 for Vectrus, and the combined business is worth $25 per share versus $16.41 at today's prices.

Risks

• Greater than expected headwinds in the Vectrus mission systems business, especially in their major Afghanistan and Iraq contracts.
• Continued political pressure to reduce military and defense spending, although temporarily out of the headlines, the budget deficit is still substantial and unsustainable. 
• Exelis has a large unfunded pension liability in comparison to its market cap, if interest rates stay flat or decline it could force Exelis to make additional pension contributions above current projections.  Additionally, Exelis is assuming an 8.25% rate of return (down from 9.00% in 2012) which could turn out high given current elevated asset prices.
• The spinoff was guided earlier in the year for "Summer 2014", but has now slipped into summer/fall, further slippage or cancellation of the spinoff would reduce the attractiveness of Exelis, but it still remains an undervalued company in its current form.

Summary
With the defense industry near a cyclical bottom, the spinoff of the Vectrus mission systems business provides an attractive event driven investment opportunity by creating a higher growth products business and a headwinds facing services business.  I'm initially going with a Joel Greenblatt like call option strategy to enter a postion, the spin will expose value in both the parent and the orphan, but I'm extending it out with a January expiration to allow Vectrus a little time to find a following in the investment community.  Depending on where Vectrus trades after the spinoff, I may pickup some additional shares at that point.

Disclosure: I own XLS calls, anticipate buying VEC shares sometime after the spinoff is completed

Quick Post on PHH Corp

The PHH Corporation story is pretty well known at this point.  Before two weeks ago, it operated in two unrelated businesses: mortgage origination/servicing and fleet management leasing.  At the insistence of an activist campaign (which the activist curiously exited last week) the company sold off it's fleet management business to Element Financial Corporation for $821MM net of taxes ($1.4B pretax) to create a purer play on mortgage origination and mortgage servicing rights.

The mortgage origination business is struggling in the current environment, refinances have mostly dried up as those who could refinance already have and the home purchase market has yet to really show signs of strength as consumers are struggling with debt and stagnant wage growth.  The servicing side of the business however should become more valuable as interest rates rise and fewer mortgages are refinanced stretching out the length of time borrowers maintain their mortgage and increasing the servicing fees collected by PHH.  The business is at a cyclical low, layoffs are in the thousands across the industry, sentiment is low, and that creates a potential opportunity when teamed with the sale of the fleet management business.

The market cap of the company is only $1.4B, so the sale of the fleet management business represents a large cash infusion, PHH laid out it's plans in a recent investor presentation:

PHH is planning on repurchasing up to $450 million in stock over the next 4-5 quarters, including $200 million shortly after the 2nd quarter earnings release, or a total of ~32% of the market cap.  PHH's shares trade at 0.75x proforma tangible book value (with the optionality of the mortgage servicing rights value increasing in a rising rate environment) and within a few weeks there will be a large indiscriminate buyer in the market scooping up shares.  Approximately 30% of the shares are short, and 40% of the shares are in the hands of Hotchkis & Wiley, PIMCO, Citadel, and DFA, plus another 10% in index funds, sets itself up for a potential small short squeeze rally.  So in the end, you get a business that's retooling itself for the next stage of its business cycle at a cheap price with a near term catalyst.

Disclosure: Long a small amount of PHH

CBS Outdoors Americas: Split-Off, Exchange Offer, and a REIT Conversion

Following up on the REIT conversion theme that is ever so popular this year, there's an interesting exchange offer giving CBS shareholders the opportunity to swap CBS shares for CBSO at a 7% discount.  CBS Outdoors Americas (CBSO) is another REIT conversion that split-off of CBS Corporation (CBS.A/CBS) earlier this spring via an IPO of 19% of the company on 3/27/14 (CBS retained the remaining 81% stake).  

CBS Outdoors is a billboard and out of home display advertising company that operates over 350,000 billboards throughout the United States, Canada, and Latin American.  The company generally owns the physical billboard assets but leases the underlying sites from property owners.  Their advertising revenue contracts are usually short term in nature, however billboard advertisements are seen as DVR proof (or as the company puts it "always on") and their popularity has increased in recent with advertisers as print and other forms of advertising have suffered.  The company is focusing its capex efforts on converting select billboards to a digital format which brings in 3-4x the revenue as engagement improves and advertisers can be more targeted (night versus daytime, etc).  It's an established business that's relatively stable, although is subject to the cyclical nature of the economy as advertising dollars ebb and flow.

The main reason for the split-off is so CBS Outdoors can convert their corporate structure to a REIT and eliminate most corporate level taxes.  Unlike some of the other conversions I've been highlighting, CBS Outdoors has already secured the private letter ruling (PLR) from the IRS back in April which is why the pre-REIT discount isn't as significant here.  But because CBS still owns 81% of CBSO, it cannot formally convert to a REIT until after the exchange offer is complete, which it plans to do immediately.  The conversion purging dividend isn't a big issue here, estimated at $500 million, $100 million of that will be in cash (or ~$0.83 per share) and the other $400 million will be in shares, or roughly 12.4 million (+10% to the outstanding) in additional shares.

CBS Outdoors has two pure play display advertising rivals in the US: Lamar Advertising (LAMR) and Clear Channel Outdoor Holdings (CCO).  Lamar is also pursuing a REIT conversion, Clear Channel is a little murkier as it has a complicated private equity structure that makes comparasions more difficult.  They're all valued roughly the same at 11-12.5x forward EBITDA, but that's still a moderate discount to the REIT universe that trades for 15-20x EBITDA.

From an AFFO prespective, CBSO earned approximately $2.00 last year, so proforma for the purging dividend its trading at 15x trailing AFFO.  Not screaming cheap, but still a slight discount to traditional REITs.

I tend to look for opportunities that don't screen well, CBSO doesn't look attractive on a traditional P/E basis (~22x), even though the REIT conversion is well known, it will take some time for REIT investors to become familiar and comfortable with the outdoor sector.  One risk to note is CBSO will not be included in any well followed indexes after the exchange offer is completed which may increase the time it takes to gain acceptance in the REIT sector.

As a way to get an even better valuation, CBS shareholders can exchange their shares for CBSO shares at a 7% discount.  The exchange essentially works as a buyback for the parent CBS as it will retire the shares that are offered in the exchange.  There is an odd lot provision where holders of fewer than 100 shares of CBS will not be subject to proration provided they tender all their shares.  No fractional shares will be issued, and there is an upper exchange limit of 2.1917 CBSO shares for each CBS share.  The offer expires on July 9th, so if you want to participate you need to act quickly.  After the exchange is completed, CBS Outdoors will have the right to keep the CBS name for 90 days before rebranding, and they'll have up to 18 months to rebrand the 350,000 billboards which sounds like quite the endeavor as well.

Overall, CBS Outdoors Americas is a moderately undervalued security that is made more attractive via the exchange offer.  I purchased 99 shares of CBS, to avoid the proration, and have submitted my shares for exchange effective next week.  I don't anticipate making it a long term holding (few weeks to a few months), but I'm comfortable participating in the exchange offer and accepting the market risk given CBSO's relative undervaluation compared to REIT peers.

Disclosure: I own shares of CBS, going to fully exchange for CBSO

Mid Year 2014 Portfolio Review

In my year end 2013 portfolio review,  I planned to do this quarterly, but I don't think I'll have enough commentary or trades to give a full update each quarter.  Going forward, I'll do a portfolio performance review semi-annually.  Onto the results (there were no deposits or withdrawals into the blog portfolio during the period):

The first half of 2014 has been great, just about all of my ideas have been working, but I don't have any visions of this continuing at the current pace.

However, a lot of value investors get too caught up in the macro picture, trying to outsmart the market by holding large cash positions, tweeting links to examples of excess in the market, and attempting to call a market top.  It always sounds clever to be bearish and pessimistic, but it's not productive unless you're trying to build followers.  I'd rather focus on finding a handful of mispriced securities than constantly worrying about when the next market correction is going to happen, it will at some point, but for smallish investors it leads to bad decision making.

Current Portfolio

 Positions Closed

You'll see I disposed of the thrift/mutual bank conversions, I still like the strategy and will continue to highlight conversions I find attractive, but for now I'm going to pass until I increase the size of the portfolio or macro conditions change.  I'm finding too many other opportunities available that don't have 2-3 year opportunity costs like a thrift conversion.  I also work for a large bank and I'm fully aware of the headwinds facing the entire industry, especially those highly weighted towards net interest margin like small community banks.

There are so many spinoffs happening right now it's hard to keep them all straight.  Despite the value creation being fairly well known at this point, spinoffs still outperform as a group.  I'm going to try to identify a few that I find interesting in the back half of the year.  Then exploiting them either by buying a call option if I believe the spinoff is actually the more attractive asset (like OIS/CVEO), or wait until regular trading occurs and buy the spinoff if its the orphaned business that gets sold indiscrimately.  I also like the REIT conversion trend, curious to see if these conversions and tax inversions acquisitions will finally spark some corporate tax reform in Washington.

Position Thoughts/Updates

Howard Hughes Corporation
Lots to like at Howard Hughes Corporation, they're aggressively investing in their "strategic assets" which will make their way into operating asset bucket over the next few years.  At some point in the future, it doesn't make sense to have these stabilized operating properties in a C-Corp structure, so another REIT spinoff could be in the offering once the NOLs are used up.  I like this company as a long term compounder, they have quite a few levers to pull and a capital allocation/shareholder focused management.  At a recent investor presentation, management quipped that an analyst's $200 price target was too low, I would agree.

MuniMae
It's balance sheet has uncovered most of the hidden real estate value due to accounting consolidation rules already creating a quick gain.  The question is what's next?  I like the share repurchase program, but that doesn't really help the fact that they're too small to be a public company, and they're only breaking even on an operating basis.  MuniMae has an incredible amount of NOLs, they should be initiating a rights offering and buying an operating business that throws off taxable income.  It's no longer a screaming buy, but I'm going to hold and let the situation play out more.  However, it's towards the top of the sell list if I need cash for a better idea.

Ultra Petroleum
The Uinta Basin purchase is a nice bridge asset, its going to be cash flow positive right away and gives management and analysts something to focus on while waiting for natural gas to resume its climb up.  There's still a huge spread between natural gas prices in the United States and what it fetches in foreign markets.  Given the recent news about oil exports being allowed for the first time in 40 years, more LNG export terminal approvals might be in the offering as well, long term this spread should narrow.

Disclosure: Table above is my blog/hobby portfolio, its a taxable account, and a relatively small slice of my overall asset allocation which follows a more diversified low-cost index approach.  The use of margin debt/options/concentration doesn't represent my true risk tolerance.

More Thoughts on Civeo Corporation

I gave an investment pitch at a CFA Society of Chicago roundtable today with a "Value investing in a not-so value world" topic theme, my idea was Civeo Corporation, below is the deck I used, been a great winner for me so far via a pre-spin call option that expired today.  I presented a pretty bullish view for the purposes of the pitch, but I think it has decent room to the upside as they pursue a REIT conversion.

Disclosure: I own shares of CVEO, sold my shares of OIS

Cadus Corporation: Flip this House with Icahn

Cadus Corporation (OTC:KDUS) might be familiar to a few value investors who enjoy having their patience tested.  Cadus is a former drug development company that sold essentially all their assets in 1999 to OSI Pharmaceuticals (which itself was purchased by Astellas Pharma in 2010).  Ever since Cadus has been more or less a shell company, with cash and some net operating loss carry forwards (zero revenues, no full time employees only a part time CEO earning $25,000 per year).

Carl Icahn has been a major shareholder of the company since the mid-1990s, and has resisted calls from investors to liquidate the company citing the $19,341,000 of NOLs.  It may seem tiny to a multi-billionaire, but Icahn is probably the type where it bothers him leaving any amount of money on the table.  In February, he finally got moving and Cadus announced "the company is currently seeking opportunities to profit from purchasing land and residential homes for construction or renovation and resale in the state of Florida."  He assigned his wife's son in law as the new CEO and as of 5/14/14, they have purchased 9 homes in Florida for $20.9 million, clearly targeting the upper end of the housing market.

Cadus Corporation's strategy sounds similar to David Einhorn's strategy with BioFuel Energy, however with BioFuel they're buying a larger operating company and have significantly more NOLs to monetize.  With Cadus, the house flipping venture appears short term in nature and maybe a simpler tactic to monetize the NOLs, and liquidate the company after the homes are sold?  Cadus should also be a less stomach churning ride as the retail day traders have likely long forgotten about Cadus.

To further fund the house flipping operation, the company went forward with a rights offering at $1.53 a share, one right for each share outstanding.  Icahn backstopped the rights offering and now owns 67.8% (40% prior) of the company after the rights offering, meaning almost all of the original shareholder base other than Icahn declined participating (I would expect a similar result in BIOF's upcoming rights offering).  The pro forma book value looks something like this:

3/31/14 Book Value = $22,314,215
Rights Offering Proceeds = $19,803,934
Proforma Book Value = $42,118,149
Shares Outstanding (after the rights offering) = 26,288,080
Book Value/Share = $1.60

The thesis is pretty simple with Cadus Corporation, it trades roughly at Icahn's recent cost basis and a liquid/current book value.  If the luxury flipping operation works out well, Cadus should be able to use up the net operating losses in the next year or two.  Due the short term nature of house flipping, I could see the company being liquidated once the tax asset is monetized.  It's not going to be a multi-bagger, but could provide an attractive return with minimal downside.

Disclosure: No Position

Civeo: a Spinoff and a REIT Conversion

Oil States International (OIS) is a oil services company that is spinning off its accommodation business, Civeo Corporation, later this month (it goes "when issued" Monday, and trades "regular way" on 6/2) after some nudging from activist investors last spring.  Civeo provides accommodation services for the resources industry in remote locations, think "man camps" that kind of look like portable prison complexes.  As apart of Oil States, Civeo is taxed as a C-Corp, but shortly after the spinoff Civeo's board intends to evaluate converting to a REIT structure, eliminating corporate level taxes, providing an immediate increase in the business's valuation.  This isn't a new idea, but despite JANA partners and Greenlight Capital being major shareholders, there's still a significant disconnect in the combined company's current valuation.

The company has laid out the typical reasons for the spinoff: management focus, optimize each unit's capital structure, cleaner for investors to value, acquisition currency, and aligning incentives.  Both businesses are attractive, it's not a classic spinoff where one of the businesses is orphaned and dumped in order to make the parent's results more appealing. However, the real value is the REIT conversion, REITs are valued more richly than C-Corps due to their tax advantaged status.  The pre-spin OIS trades for roughly 7x EBITDA, lodging/multi-family REITs trade in the 15-20x range, as long as the OIS stub remains priced at 7x EBITDA, a lot of value is going to be created through the spinoff and REIT conversion of Civeo. 

Civeo Corporation
Civeo is a pretty unique lodging company, they provide medium term (contracts are around 3 years) accommodations services to remote resource mining operations, a valuable service since infrastructure and labor supply is lacking in these far off locations.  Some of their lodges/villages can be quite large, for instance their Wapasu Creek Lodge has 5100 rooms, making it the second largest lodging property in North America behind the MGM Grand in Las Vegas.

Civeo Investor Presentation

Their operations are primarily located in the Canada oil sands region in Alberta, and around major metallurgical coal mines in Australia (as a result of the late 2010 acquisition of the MAC).  Being a US based company, this exposes Civeo to considerable currency risk, in particular Australia worries me being so closely tied to the Chinese economy.  Another unique feature of Civeo's business is the permanence of their real estate and how the market might value it?  They focus on providing accommodations to long lived resource assets, in the 30-50 year time frame, but their lodges (at least in Canada) are on leased land, and presumably depreciation expense is more real as a result.

Civeo Investor Presentation

Civeo sports a nice growth profile as seen above.  They "land bank" in growth areas like the west coast of British Columbia near potential LNG projects - their current lank bank pipeline could add another 15,000 rooms to their asset base over time.

One reason for the current discount might be due to a lack of pure comparables, do you value Civeo as a hotel REIT, multi-family/apartment REIT?  I blended the two below and threw in Extended Stay, which is not a REIT but is similar in that it tries to create a medium term apartment feel in a hotel.

Data via Bloomberg - Net Debt Includes Preferreds

As you can see, this peer group average is valued at approximately 17.5x EBITDA, I would place a little discount on Civeo as a result of its dependence on the cyclical resource industry as well as the more temporary nature (temporary in the 30 years sense) of its asset base.  Even putting a 15x EBITDA multiple on Civeo, backing out the $775 million in anticipated debt (and not accounting for any cash on hand) I come up with a $5.6 billion valuation, which is slightly more than the entire market cap of pre-spin OIS.  Even if you disagree with the comps, multiple, or discount the 2013 EBITDA for some anticipated slowdowns in Australia and corporate overhead, you're coming close to getting the remaining OIS for free.

Oil States International: Post-Spin
Post Spinoff, the Oil States stub will become a more focused energy services company with a TTM EBITDA of $435 million on $1.7 billion in revenue.  I haven't spent as much time on the remaining pieces of Oil States, but assuming it remains valued at a little over 7x EBITDA (which looks reasonable given peers trade for 9-10x EBITDA) the stub is worth roughly $3 billion.  Below is another list of comparables to give you an idea for where oil services companies are trading currently.

Data via Bloomberg

$5.6 billion for Civeo and $3 billion for Oil States gives you a pre-spin value of $160 per share.  I'm sure some of my numbers are a little optimistic, using EBITDA multiples obviously has its issues, and it will take some time for the REIT conversion to take place and for investors to fully value each component, but there's upside to be had here.

Risks
A few questions/risks that run through my mind:

• Will traditional oil service company investors dump Civeo after the spin?   Seems unlikely given that's what the investor base has been pushing for, but any blip due to selling pressure would be temporary.
• What about OIS, will that get dumped in favor of Civeo?  This appears more likely than Civeo being sold indiscriminately, however it's already cheap and would be a bite sized acquisition target for larger players in the industry.
• Australia - Civeo is heavily exposed to the country's met coal market and thus the Chinese growth story which we've seen is slowing a bit and potentially in a massive housing bubble.
• REIT conversion doesn't occur, it appears that the IRS is softening up its stance on these non-traditional REITs (like Iron Mountain), but with Civeo structures not being 100% permanent, I could see it being viewed with a skeptical eye.

My Strategy
Most value investors are aware of the spinoff strategy of buying the SpinCo after the initial wave of selling by unnatural holders or ones that don't want the orphan/bad business.  But in this instance, I think that Civeo could be the more appealing company for new investors to come in post-spin due to the planned value unlocking strategy to convert to a REIT.  So instead of waiting for the spin, I bought June expiration calls on OIS early last week, that way I have leveraged upside to the initial reaction to the spinoff which I expect to be positive, and the secondarily I plan to exercise the option, immediately sell OIS (unless it slumps) and hold CVEO until it converts to a REIT for that second leg up in valuation.

Disclosure: I own OIS calls