Worthington Industries to spin-off Worthington Steel on Dec. 1

Record date: 11/21; Delivery Date: 12/1

On November 9, 2023, Worthington Industries
Worry
, Inc. (NYSE:WOR, $65.45, market capitalization: $3.3 billion), a leading industrial manufacturing company, announced that its Board of Directors has approved the previously announced separation of its steel processing business (Worthington Steel). According to the company’s press release, each WOR shareholder will receive one common share of Worthington Steel (Spin-Off) for each common share of WOR. The record date for the distribution to common stockholders is 11/21. To effect the Separation, the Company’s Board of Directors has authorized a pro rata distribution to WOR common stockholders as of the close of business on the Record Date of 100% of the outstanding shares of Worthington Steele.

The distribution is expected to be made to the Company’s common stockholders of record before the market open on 12/1 (the Distribution Date) until the close of business on 11/21, which is the record date for the distribution. The Company expects “when-issued” trading for Worthington Steel’s ordinary shares on the NYSE to begin on or about 11/28 and continue until the distribution date under the symbol “WS WI”. Additionally, beginning on 11/28 and until the distribution date, it is expected that there will be two ways to trade WOR common shares – either with or without the distribution of Worthington Steel common stock. Worthington Steel will begin regular trading on the NYSE on 12/1 under the ticker symbol “WS.” Also, on 12/1, Worthington Industries will change its name to Worthington Enterprises and will continue to trade under the ticker symbol “WOR”.

Evaluation

We value Worthington Industries (WOR) using the 2024e EV/EBITDA methodology by valuing Worthington Enterprises (stub) and Worthington Steel (spin-off) separately. Our intrinsic value of $47.00 for WOR (stub) is based on a 2024e EV/EBITDA multiple of 9.3x for the Consumer Products segment (~7.7% premium to peer multiple of 8.6x), 8.0x for the Building Products segment (Line in) with peer multiple), and 13.1x for Sustainable Energy Solutions (in line with peer multiple). Our fair value estimate for Worthington Steel (spin-off) is $23.00 per share, based on a 2024E EV/EBITDA multiple of 6.8x from the steel processing business (a ~7.5% discount to the average peer multiple of 7.3x). We’ve come to a consolidated target price of $70.00 per share for Worthington Industries, which represents a potential upside of 7.0% from the current market price of $65.45 as of 11/15. Thus, we maintain our ‘Hold’ rating on the stock.

Risks to our valuation include a slowdown in sales growth and market share due to an economic slowdown, rising inflation, higher than expected raw material costs and lower returns on free cash flow reinvestment.

Regular-Methods and When-Continued Trading

The Company expects “when-issued” trading for Worthington Steel’s ordinary shares on the NYSE to begin on or about 11/28 and continue until the distribution date under the symbol “WS WI”. Starting from 11/28 until the distribution date, WOR expects to have two ways to trade its ordinary shares, either with or without the right to take delivery of Worthington Steel ordinary shares. WOR shareholders who sell their common shares in the “regular-ways” market on the NYSE under the current ticker symbol “WOR” after the Record Date and until the Distribution Date will retain their right to receive shares of Worthington Steel common stock. By-product. Alternatively, WOR shareholders who sell their WOR common shares in the “ex-distribution” market under the symbol “WOR WI” during the same period may exercise their right to receive shares of Worthington Steel common stock in connection with the spin-off. Will sell the rights. Worthington Steele is expected to begin ‘regular-way’ trading on the NYSE on 12/1. Additionally, Worthington Industries will change its name to Worthington Enterprises and will continue to trade under the ticker symbol “WOR”.

WOR shareholders will receive one ordinary share of Worthington Steel for each ordinary share of WOR held on the record date. Worthington Industries shareholders who held WOR common shares on the record date will either receive a book-entry account statement reflecting ownership of Worthington Steel common shares, or their brokerage account will be filled with Worthington Steel shares without any action. Will be deposited. The shares are expected to be credited to “street name” shareholders through the Depository Trust Corporation (DTC) on the distribution date. The Company will not issue fractional shares of Worthington Steel common stock to WOR stockholders. Instead, cash will be paid in exchange for fractional shares.

Evaluation

We value Worthington Industries based on the sum of the parts by separately valuing Worthington Enterprises (stub) and Worthington Steel (spin-off) using the EV/EBITDA valuation methodology.

A]Worthington Industries (stub):

EV/EBITDA valuation:

Following the spin-off, WOR (stub) will consist of the company’s Consumer Products, Building Products and Sustainable Energy Solutions segments. Our intrinsic value of $47.00 for WOR (stub) is based on a 2024e EV/EBITDA multiple of 9.3x for the Consumer Products segment (~7.7% premium to peer multiple of 8.6x), 8.0x for the Building Products segment (Line in) with peer multiple), and 13.0x for Sustainable Energy Solutions (in line with peer multiple). The premium assigned to consumer product segments affects the value of a company’s brand offering and market position. We assume net debt of $84.3 million due in 2024, taking into account the ~$150 million cash payment made by Spinco to WOR (Stub) at the time of the separation (as provided in Worthington Steel’s Form 10 filing).

B]Worthington Steel (Spin-off):

Following the spin-off, Worthington Steel will consist of a steel processing business. Our fair value estimate for Worthington Steel (spin-off) is $23.00 per share, based on a 2024e EV/EBITDA multiple of 6.8x for the steel processing business (a ~7.5% discount to the average peer multiple of 7.3x) and 2024e net debt. based on. Of $127.3 million. The discount to the median peer multiple reflects its relatively smaller business scale compared to its larger peers.

C]Consolidated Assessment:

We’ve come to a consolidated target price of $70.00 per share for Worthington Industries, which represents a potential upside of 7.0% from the current market price of $65.45 as of 11/15. Thus, we maintain our ‘Hold’ rating on the stock.

Company Description

Worthington Industries, Inc. (Original)

Headquartered in Columbus, Ohio, Worthington Industries (NYSE: WOR) is an industrial manufacturing company focused on value-added steel processing, laser welded solutions, electrical steel lamination and manufactured consumer, building and sustainable mobility products in North America and internationally. Is. It operates through steel processing, consumer products, building products and sustainable energy solutions segments. In FY23, Worthington Industries generated total revenues of $4.9 billion. Following the spin-off, Worthington Industries will change its name to Worthington Enterprises and continue to trade under the ticker symbol “WOR”. Worthington Enterprises will be a market-leading designer and manufacturer of innovative building products, consumer products and sustainable energy solutions. The consumer products segment offers propane-filled cylinders for torches, camping stoves and other applications; and LPG cylinders, handheld torches, helium-filled balloon kits, specialty hand tools and accessories, and drywall tools and accessories under Coleman, Burnzomatic, Balloon Time, Mag-Torch, General, Garden-Weasel, Pactool International, Hawkeye, Worthington Pro. Equipment grade, and Level5 brand. The Building Products segment offers LPG cylinders, well water and expansion tanks, and other specialty products including fire suppression tanks, chemical tanks, foam and adhesive tanks for gas producers and distributors. The Sustainable Energy Solutions segment sells onboard fuel systems, related services, gas containment solutions and services for the storage, transportation and distribution of industrial gases. It offers high pressure and acetylene cylinders for life support systems and alternative fuel cylinders to hold CNG and hydrogen for automobiles, buses and light-duty trucks.

Worthington Steel (spin-off)

Following the separation, Worthington Steel will be a best-in-class, value-added steel processor and manufacturer of electrical steel lamination and automotive lightweight solutions, positioned to capitalize on the growing opportunities in electrification, sustainability and infrastructure spending. Worthington Steel will have a unique capability set and sophisticated supply chain and pricing solutions to serve its blue-chip customers, grow market share and increase margins. The company will continue to leverage the Worthington Business System to power a winning culture, higher growth and profitability through transformation, innovation and acquisitions. For FY23, Worthington’s steel processing business generated sales of ~$3.5 billion.