Chemtura: Share Buyback Tender Offer Provides A Convenient Entry Point

By Alex Gavrish, Etalon Investment Research; author of “Wall Street: Back to Basics

Chemtura completes sale of Agrochemicals business

Chemtura Corp (NYSE:CHMT) announced recently that it has completed the sale of its agrochemicals business, Chemtura Agrosolutions, to Platform Specialty Products Corporation, a global specialty chemicals company, for approximately $1 billion, consisting of $950 million in cash and 2 million shares of Platform’s common stock (currently valued at about $50 million). With the completion of the sale, Chemtura’s core platform is focused around Industrial Performance Products (“IPP”) (petroleum additives and urethanes) and Industrial Engineered Products (“IEP”) (flame retardants, brominated products and organometallics), global leaders in the markets they serve.

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Return of capital to shareholders

On October 31, 2014, Chemtura Corp (NYSE:CHMT) announced that it is commencing a modified “Dutch auction” tender offer to purchase for cash shares of its common stock for an aggregate purchase price of no more than $300 million. Pursuant to the tender offer, company will repurchase shares at a price that is between $21.5 and $24.5 per share. Taking a midpoint of this range, Chemtura can repurchase up to 13 million shares or approximately 15% of shares outstanding. In addition to share buyback, company announced that it will use additional $246 million to repay debt.


Valuation summary

Adjusting for shares repurchased through tender offer and after debt repayment, Chemtura Corp (NYSE:CHMT)’s maket capitalization is estimated to be $1.75 billion, net debt $66 million, and enterprise value approximately $1.82 billion. According to company’s latest quarterly results presentation, two remaining business segments had generated an EBITDA of $224 million (LTM Q3 2014), implying a current EV/EBITDA ratio of x8 (based on adjusted EV). The company might be relatively risky investment for a conservative investor as the company emerged from bankruptcy only few years ago. At the same time, completion of Agrosolutions division sale and significant return of capital to shareholders provide an attractive entry point for more aggressive investors