New York, NY, Aug. 15, 2014 -- Flooring industry analyst Stifel Nicolaus says talk is heating among its clients up that Armstrong World Industries could be broken into separate entities.
However, in its analysis, Stifel said it believes that it's unlikely the flooring business would be spun off anytime soon.
Citing the recent purchase of 16.8% of the company by investment firm ValueAct, Stifel said, "the breakup thesis has once again become popular" among its client investors.
"The earnings strength of the ceilings business and the generally poorer performances from flooring are no doubt driving this thesis," Stifel says.
Stifel noted that when Armstrong emerged from its asbestos related Chapter 11 in 2006, the plan was to split the company into two pieces that most likely would have had the ceilings (building products) business sold to private equity in a leveraged buyout and the flooring assets acquired by a strategic buyer.
"Not long after hiring an investment bank to pursue this strategy, the LBO window closed, followed by the Great Recession which all but killed this possible outcome," Stifel said.
Stifel walks through a sum of the parts analysis and concludes that if the flooring business were to be spun off, it likely wouldn't happen soon "due to the fact that the wood business is likely to contribute the primary EBITDA growth in the next 18 months due to the margin issues there in 2013 and 2014."
Stifel has a "hold" rating on Armstrong stock.