InterviewPigment IPO to give US Huntsman fairer valuation: CEO

17 September 2013 19:49  [Source: ICIS news]

Peter HuntsmanBy Al Greenwood

HOUSTON (ICIS)--US-based Huntsman's planned public offering of its expanded pigments business will allow the company to receive a more accurate valuation of its remaining assets, which are predominantly made up of less cyclical polyurethanes (PUs) and performance products, the company's CEO said on Tuesday.

Huntsman is expanding the business through the acquisition of Rockwood Holdings' titanium dioxide (TiO2) pigments segment, along with its performance additives business, which includes colour pigments, timber treatment and other chemicals.

Huntsman is acquiring the Rockwood businesses for $1.1bn (€825m), plus the assumption of $225m in pension liabilities. The deal should close in the first half of 2014, pending regulatory approval.

Once the deal closes, the combined Huntsman and Rockwood pigments businesses would be subject to a public offering within two years.

The resulting pigment company will be more cyclical than the remaining Huntsman's businesses, which tend to be steadier in regard to earnings, said Peter Huntsman, CEO.

"It gives us an opportunity to provide two vehicles of investments for shareholders," he said.

Plus, investors and analysts should focus more intently on Huntsman's non-TiO2 assets, he said.

For all the attention that Huntsman's TiO2 business gets during earnings conference calls, it makes up a relatively small portion of the company's sales and earnings.

In 2012, pigments made up 12% of revenue, versus 43% for polyurethanes and 27% for performance products. Pigments made up 23% of adjusted earnings before interest, tax, depreciation and amortisation (EBITDA), versus 49% for polyurethanes and 23% for performance products.

The public offering "really provides a heightened investor focus on our existing business", said Kimo Esplin, chief financial officer.

Huntsman itself has been focusing on those businesses, especially polyurethanes.

Polyurethane insulation outperforms other materials, and demand should increase because of stricter energy-efficiency standards for buildings and appliances.

Huntsman recently closed on the acquisition of Oxid, which produces polyether polyols that improve polyurethane's insulating properties.

Meanwhile, the newly created pigments company should benefit from what producers see as a recovery in the TiO2 market.

Average TiO2 prices fell from an all-time high of $2.06/lb ($4,541/tonne) in August 2012 to $1.625/lb, where they have remained since January 2013.

Peter Huntsman said the rapid price drop was caused by pigment customers buying large amounts of product and building stocks during 2011. Since the splurge, inventory levels have returned to normal levels.

"We've got a feeling that growth rates and stability are back to where it has traditionally been," Huntsman said.

Huntsman and other TiO2 producers have said that pigment prices have bottomed out and are on the path to recovering.

Esplin said, "It is the right time for the TiO2 cycle."

The combined Huntsman and Rockwood business will enter the market as the second largest producer of TiO2 and inorganic colour pigments as well as the largest buyer of sulphate ores, Huntsman said. It will offer the widest range of colour and white pigments of any other company.

By the end of 2015, the pigment businesses' performance should be further strengthened by a cost-cutting programme that should save $130m/year, the company said.

In addition, the two businesses complement each other, Huntsman said.

The Rockwood segment derives a large portion of its earnings from specialty markets, he said. For Huntsman's pigments, that figure is 10-15%.

A key point for the new company is that it will not be limited to TiO2, Esplin said.

Part of Rockwood's asset sales includes colour pigments such as iron oxide.

Altogether, the part of Rockwood's performance additives segment being sold includes water treatment, timber treatment, specialty auto materials and colour pigments businesses. It does not include the clay-based additives business, which Rockwood has agreed to sell to Germany's ALTANA.

The combined Huntsman and Rockwood pigment company should have adjusted EBITDA of $530m on revenue of $3.4bn, according to a presentation by Huntsman.

Broken down, coatings and plastics TiO2 should make up nearly half of EBITDA. Specialty TiO2 and additives should make up 31%, while colour pigments will make up 12%. Timber treatment and other segments should make up 8%.

If the public offering goes through, then the combined Huntsman and Rockwood pigment company will join Kronos, Tronox and Cristal, all of which would focus on TiO2.

DuPont, another major TiO2 producer, is considering selling the business. Potential bidders would likely be private-equity firms, analysts have said.

Additional reporting by Stefan Baumgarten and Joseph Chang

($1 = €0.75)

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By: Al Greenwood
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