Cramer: Company worth $132 on a breakup

Why a breakup in Visteon could be terrific
Why a breakup in Visteon could be terrific   

Sometimes different divisions of a company shouldn't be under the same roof. Cramer says this is one of those times.

The company is Visteon, an automotive supply firm, and Cramer says chatter about the potential of a breakup has intensified recently, due to a published report suggesting the board was considering just such a move.

Largely speculation suggests the board is considering a plan to split Visteon into two companies, one focused on electronics and the other on climate controls




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Cramer believes the plan would unlock significant shareholder value, in large part because Visteon's electronics division is fast growing, and therefore may command a higher multiple if it were independent.

"At the moment, this business is buried within a larger company, but if the electronics segment were to become a standalone company, then I think it would trade much higher," Cramer said.

Meanwhile, Cramer thinks the climate control unit would also attract investor interest, as a solid company that's gaining market share.

Cramer finds the prospects of a spinoff so intriguing he's crunched the numbers. As far as he can tell, the spin-off could drive a return of more than 20 percent.

Following is Cramer's sum of the parts analysis.

"First, Visteon owns 70% of Hall Visteon Climate Control, which is a company that's publicly traded on the Korean stock exchange. That means there's an exact value for this business, and Visteon's stake is worth $3.9 billion, or $95 per share," Cramer said.

"Then there's Visteon's core electronics business. If we value this fast-growing segment at a slight premium to its peers, which I think is conservative because it might command big premium, then you get a business that's worth $45 per share. Throw in the recently acquired Johnson Controls electronics business, which will be part of Visteon's electronics division and so deserves the same valuation, and you get another $17 per share."

"Add it all up, then subtract $25 for Visteon's net debt, its overhead, and its underfunded pension, and you have a company that could easily be worth $132 a share on a breakup," Cramer speculated.

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Because Visteon is a well run company with strong prospects and shrewd management, whether it splits or not, Cramer thinks the risk is well worth the reward.

However, "I absolutely think Visteon should break itself up, and I wouldn't be at all surprised if the board embraces the plan. Visteon has always said that all options are on the table, and in the past they've moved decisively and aggressively to boost shareholder value," Cramer said. "As long as the board is contemplating a breakup, I think it's worth holding onto the stock, at least until they reach a decision."

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