VVV officially announced an agreement to sell the Global Products business to Aramco. VVV went on our Best Idea Long list due to the value creation we saw in a separation of the Valvoline Instant Oil Change (VIOC) business and the products business. The deal is valued at $2.65bn or about 9x segment level EBITDA. The company anticipates $2.25bn in cash proceeds from the transaction that will be used to pay down debt, return cash to share holders and invest in VIOC growth, though the company suggested the initial capital deployment of proceeds will be in a share repurchase program.
We think VIOC is one of the best growth assets in all of retail and deserving of a 20x+ EBITDA multiple as a standalone business. We’ve been making the case for unlocking value with a business separation since mid-2019. VIOC is a growth asset that when separated should get strong interest from growth investors that had little interest in owning the “CPG” type Global Products asset. In our valuation framework we applied an estimated corporate expense to the two separate segments, which puts the implied deal value here at a little over 10x on our valuation table. With this separation we see upside in VVV to $50 with stock buyback providing strong downside support.
