Can You Profit Off This Upcoming Spin-off?

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In late November, marine shipping company Seacor Holdings (NYSE: CKH) announced plans to spin off its majority-owned Era Group (symbol pending - exchange pending) subsidiary into a standalone public company. Through a tax-free distribution of shares to its existing shareholders, the company will completely sever ties with the helicopter-transport service. The deal's relatively low value obscures the tremendous opportunity that it presents for savvy investors. Although the deal has received little press thus far, its planning stages are nearly complete. In fact, Seacor has indicated that the spin-off will be completed by January 31.

About SEACOR Holdings and Era Group

Fort Lauderdale, Florida-based Seacor Holdings is a highly diversified marine transport, logistics and energy-services company that operates on a worldwide basis. It manages remote-operated vehicles, anchor teams and small support vessels for offshore oil and gas exploration and extraction operations. Seacor also offers safety and environmental services to a wide range of energy companies, including certain wind-power producers. Although most of its transportation and logistics operation take place in offshore areas, it also conducts bulk and liquid transportation operations on inland waterways in North America and elsewhere. The company employs just under 7,000 people and earned $60 million on $2.1 billion in gross revenue in 2011.

Era Group will consist of Seacor's helicopter-transportation division. Most of its activities consist of transporting support teams, critical staff and visitors to offshore oil platforms in the waters that surround North America. The soon-to-be-independent division owns nearly 200 helicopters at an average craft-age of 12 years. The company employs over 500 pilots and mechanics as well as about 400 support staff members. In 2011, it took in about $260 million in revenues. Although final figures have yet to be broken out, it is estimated that it earned $30 million on just under $300 million in gross revenues during the 2012 fiscal year. As such, it appears to be Seacor's most profitable division. Crucially, it has substantially reduced its debt load as a condition of the spin-off and appears to be in solid financial shape.

Terms of the Deal

The Era Group spin-off is structured as a tax-free stock distribution for existing Seacor shareholders. Shares of the new company will be issued to Seacor shareholders of record as of January 24 on a one-to-one basis. These new shares will begin trading on the open market on January 31.

Seacor shareholders who wish to participate in the spin-off do not need to take any action. Those who do not wish to participate in the spin-off may sell their Seacor shares and purchase a special class of "ex-distribution" shares (NYSE: CHK WI) that began trading on January 22. These "ex-distribution" shares will merge with Seacor's so-called "regular way" shares after the Era Group distribution on January 31. Since they lack the rights to Era Group's new shares, they will trade at a significant discount to the "regular way" shares. Since Era Group's listing petition and registration application are still pending, no price point has yet been set for the company's standalone shares.

Long-Term Prospects and Limitations

Although the Era Group will immediately be one of the world's largest offshore helicopter operators, it actually operates in a fairly fragmented space. Many helicopter pilots work independently or as members of loose "guilds" that operate in defined geographical areas. As such, the company will not have the market to itself. Its primary competitor is the larger Bristow Group (NYSE: BRS).

Like Era, Houston-based Bristow transports a variety of specialists and visitors to offshore oil platforms in the Atlantic, North Sea and Gulf of Mexico. It also operates a helicopter flight academy. Depending upon Era's performance in the coming months and years, it could become a takeover target for this larger entity.

Meanwhile, Seacor must compete with oil-services giants like Halliburton (NYSE: HAL). Obviously, Halliburton is an order of magnitude larger than Seacor and operates in a number of other industries. The company's market cap exceeds that of Seacor by a factor of 20. In fact, it is not unreasonable to imagine that the smaller holding company could become a takeover target for Halliburton or another similar outfit.

Although Seacor recently refinanced some low-interest senior debt and appears to be in decent financial shape, it will no longer be able to tap its most profitable division for support. The stock has been locked in a downtrend since early 2012: From a high near $100 per share in late February of that year, Seacor has slid by nearly 15 percent to trade in a range between $85 and $87 per share. Investors who wish to avoid this uneven performance and take advantage of Era's promise may wish to purchase shares of Era on a when-issued basis before the stock's official January 31 launch date.

Obstacles and Details

Since it involves the distribution of new common stock to existing Seacor shareholders, the pending spin-off has already received a tax-free blessing from U.S. regulators. Before the deal can take place, Seacor's petition to list Era shares on the NYSE must be approved. Additionally, the Securities and Exchange Commission must give its final approval to the new company's Form 10-K application.

The deal has already been approved by Seacor's board of directors as well as a majority of its shareholder base and is not the subject of a legal investigation. If nothing arises to derail the deal at the last minute, the spin-off should meet Seacor's self-imposed January 31 deadline. Savvy investors who wish to take advantage of this spin-off without purchasing shares in Seacor may purchase "when-issued" Era Group warrants (ticker symbol: ERA WI) beginning on January 22.

mthiessen has no position in any stocks mentioned. The Motley Fool recommends Halliburton. The Motley Fool owns shares of Halliburton. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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