Alongside the petrochemical cycle, is the spinoff cycle. Sometimes the trend is to build up a portfolio of businesses, diversifying risk and seeking overall scale. But today, separation through spinoffs is clearly starting to come back in style.
One component needed to make this attractive is a buoyant public equity market. And right now, US public valuations for chemical companies are pretty lofty at around 10.7 times earnings before interest, tax, depreciation and amortisation (EBITDA), according to Mario Toukan, managing director and head of chemicals investment banking at KeyBanc Capital Markets.
Plus, certain sectors such as agricultural chemicals/biotech, are hot, and businesses in those areas stand to benefit from a valuation perspective if they become pure play public companies – as long as the sector remains in favour.
Companies are seeking higher valuations via splits
Huntsman is planning an initial public offering (IPO) of its titanium dioxide and pigments unit, but first must close its $1.1bn acquisition of Rockwood’s specialty TiO2 business, which would be part of the IPO.
In March 2014, FMC announced plans to split into two units – ag chemicals and health & nutrition on one end, and FMC Minerals (soda ash, lithium) on the other. A spinoff would take place in early 2015.
DuPont in October 2013 announced the planned spinoff of its titanium dioxide (TiO2) and fluoroproducts businesses. The combined spinoff would take place in about 18 months, placing the timing at March 2015. This move has little to do with TiO2, and everything to do with highlighting the attractiveness of its ag biotech, enzymes and food ingredients businesses.
And there is speculation that Dow Chemical may also be open to separating its ag business. “CEO Liveris noted that all transactions to optimise the portfolio will be considered, and perhaps more forceful than in the past, [said] Dow is waiting for the right moment to maximise Ag,” said Wells Fargo analyst Frank Mitsch in March during Dow’s investor day in Saudi Arabia. “This appears more constructive on the thesis of Ag being a potential separation candidate.”
Clearly companies see higher valuations through select separations at this point, particularly in the agricultural space.