Fortive To Spin-Off 80.1% Of Vontier To Its Shareholders In 4Q20
On September 8, 2020, Fortive Corporation FTV (NYSE: FTV, $73.65, Market Capitalization: $24.8 billion), announced its intention to separate Vontier through a spin-off of 80.1% of the outstanding shares of Vontier common stock to Fortive shareholders. Fortive will distribute two shares of Vontier common stock for every five shares of Fortive common stock held on the record date (TBA) for the distribution. The company will not issue fractional shares of common stock in the distribution. Fractional shares that Fortive stockholders would otherwise have been entitled to receive will be aggregated into whole shares and sold in the public market by the distribution agent. The aggregate net cash proceeds of these sales will be distributed pro rata (based on the fractional share such holder would otherwise be entitled to receive) to those stockholders who would otherwise have been entitled to receive fractional shares. Upon completion of the spin-off, Fortive will retain a 19.9% stake in Vontier, which is anticipated to be divested in a tax-efficient manner at a future date. Based on approximately 337,235,362 shares of Fortive common stock outstanding as of August 27, 2020, and assuming a distribution of 80.1% of Vontier’s common stock and applying the distribution ratio (without accounting for cash to be issued in lieu of fractional shares), Vontier expects that a total of approximately 134,894,145 shares of Vontier common stock will be distributed to Fortive’s stockholders and approximately 33,513,027 shares of Vontier common stock will continue to be owned by Fortive. The Form 10 Registration Statement has been filed publicly with the U.S. Securities and Exchange Commission. The spin-off is expected to be completed in 4Q20, subject to obtaining final approval from the Fortive Board of Directors and market, regulatory and other customary conditions. As a part of the separation, there would be a cash distribution of approximately $1.6 billion from Vontier to Fortive as partial consideration for the contribution of assets. Post-spin-off, Fortive will continue to trade under the symbol “FTV”, and Vontier will start trading under the symbol “VNT” on the NYSE. Post-separation, Mark Morelli, will be the Chief Executive Officer, and David Naemura will be the Chief Financial Officer of Vontier Corporation.
Previously, on September 4, 2019, Fortive Corporation had announced its plan to separate the company into two independent, publicly-traded companies. The company had changed its transaction structure from earlier pure spin-off to an IPO on February 14, 2020. On February 14, the company had filed Form S-1 as part of Initial Public Offering of up to 20% of its equity, by the end of 1Q20. However, due to global economic and market conditions, the company decided to withdraw Vontier’s S-1 on April 30.
Upon the completion of the separation, Fortive will be a more nimble and focused industrial growth company providing essential products, software, and services in field solutions, product realization, sensing and health. Vontier will position as a global industrial technology company delivering market-leading solutions and data driven insights to advance efficiency, safety, security, and environmental compliance for its customers in mobility infrastructure end-markets.
It is worth noting, Fortive itself was spun off by Danaher (DHR) tax-free on July 5, 2016. Fortive made significant progress with its portfolio transformation efforts with the addition of assets such as ISC, Landauer, Gordian, Accruent, and ASP. These steps have increased Fortive’s growth through the cycle while also driving increases in gross margin, adjusted operating margin, and recurring revenue.
Earlier in February, Fortive had announced a Carve-out of 20% stake in Vontier via IPO. However, due to global and domestic economic conditions worsening in March, the company has reverted its transaction structure to a spin-off of 80.1% stake of Vontier to its shareholders. The proposed separation will give both Fortive and Vontier the flexibility to advance unique strategic priorities and make independent decisions on investments, acquisitions, and capital expenditures. In turn, this will help both companies focus investments and innovation on serving their customers and strengthen their competitive positioning in the global marketplace.
Post-separation, Fortive would comprise the Professional Instrumentation Segment that includes the Field Solutions, Product Realization, Sensing Technologies platforms, and Advanced Sterilization Products business. Through the power of the Fortive Business System, the company is well positioned with enhanced core growth, leading operating margins, and a healthy mix of recurring revenue. This will enable it to deliver strong earnings growth while deploying substantial free cash flow to advance its strategy and generate higher value for its shareholders.
Vontier Corporation would be a global industrial company focused on transportation and mobility, with a portfolio of leading retail and commercial fueling, fleet management, and professional tools brands across its transportation technologies and franchise distribution product lines. Vontier is expected to possess leading positions in a range of end-markets such as retail fueling and mobility infrastructure, fleet management and smart cities, and vehicle maintenance and repair. At the same time, the company is well-positioned to capitalize on growth opportunities across a range of attractive, adjacent markets and emerging, mobility-related technologies. The Company’s Vontier Business System (“VBS”) will be a crucial source of its competitive advantage, providing the foundation of Vontier’s operating model and serving as the core of its culture.
2Q20 Results Review
Fortive Corporation announced results for the second quarter of 2020 on July 28.
2Q20 revenues declined by 15.7% YoY to $1.6 billion, reflecting a significant negative impact of the COVID-19 pandemic. Sales growth was also affected by unfavorable foreign currency exchange rates. Operating income for 2Q20 was $191.1 million, down by 23.4% YoY, with Operating Income margin of 12.2%, down 120 bps. Adjusted Operating income was $318.4 million, down by 23.7% as compared to the prior year, with an Adjusted Operating margin of 20.2%, down by 200 bps. The adjusted operating margin reflects total cost actions of greater than $100 million executed during the quarter in response to the widespread deterioration in macroeconomic conditions. For 2Q20, Net Income was $130 million, down by 25.5% YoY. For the same period, Adjusted Net Income was $241.9 million, down by 24.9% as compared to the prior-year period. Diluted net EPS from for the 2Q20 was $0.33, down by 29.8% YoY. For the same period, adjusted diluted EPS from was $0.68, down by 24.4% as compared to $0.90 in 2Q19. Net earnings from continuing operations attributable to common stockholders were $113.1 million and adjusted net earnings from continuing operations stood at $241.9 million.
1H20 revenues declined by 5% YoY to $3.3 billion as compared to the prior year. Operating income for 1H20 was $310.7 million, down by 5.4% YoY, with Operating Income margin of 9.5%, down by 400 bps. Adjusted Operating income was $669.9 million, down by 8.5% as compared to the prior year, with an Adjusted Operating margin of 20.3%, down by 70 bps. For 1H20, Net Income was $171.9 million, down by 49.3% YoY. For the same period, Adjusted Net Income was $506.2 million, down by 15.2% as compared to the prior-year period. Diluted net EPS from for the 1H20 was $0.41, down by 54.4%. For the same period, adjusted diluted EPS from was $0.68, down by 24.4% as compared to $0.90 in 1H19.
Fortive Corporation (Parent)
Headquartered in Everett, Washington, Fortive Corporation (NYSE: FTV) is a diversified industrial technology growth company comprised of Professional Instrumentation and Industrial Technologies businesses that are recognized leaders in attractive markets. The Company’s brands operate in the field instrumentation, transportation, sensing, product realization, automation and specialty, and franchise distribution markets. The Professional Instrumentation segment offers essential products, software, and services used to create actionable intelligence by measuring and monitoring a range of physical parameters in industrial applications, including electrical current, radio frequency signals, distance, pressure, and temperature. The Industrial Technologies segment offers critical technical equipment,components, software and services for manufacturing, repair and transportation markets around the world. The Company employs a team of more than 25,000 research and development, manufacturing, sales, distribution, service, and administrative employees in more than 50 countries around the world. The Company recorded total revenue of $7.3 billion in FY19.
Vontier Corporation (Spin-Off)
Vontier is a global industrial technology company focused on transportation and mobility solutions. The company’s portfolio of trusted brands includes market-leading expertise in mobility technologies, retail and commercial fueling, fleet management, telematics, vehicle diagnostics and repair, and smart cities end-markets. Vontier’s innovative products, services, and software advance efficiency, safety, security, and environmental compliance worldwide. Guided by the proven Vontier Business System and an unwavering commitment to continuous improvement and customer success, Vontier keeps traffic flowing through more than 90,000 intersections, serves more than 260,000 customer fueling sites, monitors more than 480,000 commercial vehicles, and equips over 600,000 auto technicians worldwide. Vontier’s history of innovation, margin profile, and cash flow characteristics, are expected to support continued investment across a spectrum of compelling organic and capital deployment growth opportunities. In FY19, Vontier Corporation reported total revenue of ~$2.8 billion.