On Sept. 28, 2015, SPX Corp. (SPXC, formerly SPW) completed the spin-off of SPX Flow Inc. (FLOW). Shareholders of SPX received one share of SPX Flow, which has a larger market cap than its parent for each share held (see “Big slice”).
SPX Corp. (the parent) is a global supplier of specialized engineered solutions with operations in more than 35 countries and sales in at least 150 countries. SPXC’s key products include processing systems, power transformers used by utility companies and cooling systems for power generation plants and HVAC applications. SPX Flow Inc. (the spin-off) is a global supplier of highly engineered flow components, process equipment, turn-key systems, including the related aftermarket parts and services into the food and beverage, power and energy, and industrial end markets (see “Organizational structure”). Flow has operations in more than 35 countries and sales in more than 150 countries. Flow’s fiscal year 2014 revenues were approximately $2.8 billion, with 70% of revenues coming from non-U.S. markets.
SPXC management claims that the spin-off provides both companies with greater flexibility to focus on and pursue their respective growth strategies. SPXC states the plan allows investors to value the unique attributes of each company. In preparation for the split, the company implemented a firm-wide cost reduction program. Flow, its power and energy business specifically, has been a key focus of the cost cutting program.
Both businesses are exposed to the price of crude oil directly or indirectly. Flow serves the oil market across upstream, midstream and downstream operations by providing flow control equipments and valves required in production and other parts of the oil value chain. SPXC is indirectly affected by oil price volatility through power producers and industrial customers’ order timings. The separation is expected to enable both to better manage their exposures.
We value Flow at $1.7 billion, a 21% upside from the current price of $33 (Sept. 29). We value SPXC at $600 million, a 27% upside from the current price of $11.73 (see “The skinny”). Post separation, Flow includes hydraulic technology operations. The parent continues to operate under the name SPX Corp. but trades on NYSE under the new symbol “SPXC.“