Capitalize For Kids: Third Place Winner - Long Chemture Corp.

Third Place Winner
Long Chemtura Corp.

By Shaun Currie, Manalapan Oracle Capital Management
Intelligent Investing Challenge
The analyses and conclusions contained within this presentation are based on publicly available information. This presentation is for general
informational purposes only, and does not constitute an agreement, offer, solicitation of an offer, or any recommendation to enter into or
conclude any transaction or confirmation thereof (whether on terms shown herein or otherwise). This presentation should not be construed as
legal, tax, investment, financial, or other advice. It does not have regard to the specific investment objective, financial situation, suitability, or the
particular need of any specific person who may receive this presentation, and should not be taken as advice on the merits of any investment
decision.

The views expressed in this presentation represent opinions of the author, and are based on publicly available information with respect to the
company and other companies referred to herein. Certain information and data herein have been derived or obtained from filings made within
securities regulatory authorities within Canada and the US. No warranty is made that data or information, whether derived or obtained from
filings from regulatory authorities or any third parties, are accurate.

The analysis may include certain statements, estimates, or projections prepared with respect to historic and anticipated operating performance
of the companies. Such statements, estimates, and projections reflect assumptions by the author concerning anticipated results that are subject
to significant economic, competitive, and other uncertainties and have been included strictly for illustrative purposes. Actual results may vary
materially from the estimates and projected results contained herein. No party should purchase or sell securities on the basis of the information
contained in this presentation. The author expressly disclaims liability on account of any partys reliance on the information contained herein
with respect to any such purchases or sales.

The author reserves the right to change any of its opinions expressed herein at any time as it deems appropriate. The author disclaims any
obligation to update the data, information or opinions contained in this presentation.
Disclaimer
Shaun Currie, Manalapan Oracle Capital Management, LLC - Long: Chemtura Corp
I nvestment Thesis See Appendix C for detailed write-up of Investment Thesis
We believe that Chemtura is a misunderstood company whose business today is much different
than it was only a few years ago. Once an over-leveraged, broad-based chemicals company,
Chemtura has been transforming its business through asset divestitures to improve its balance
sheet and become a pure-play on the industrial space. The companys recent announcement to
divest its AgroSolutions business will enable the company to reach a net-cash position for the
first time since returning to the public markets in 2010, and will set up the company to pay down
expensive debt and return cash to shareholders. We project that the company will use the
proceeds of AgroSolutions transaction, along with excess cash on the balance sheet, to pay down
$200MM in debt (which will reduce interest expense by $13.6MM annually) and to initiate a
tender offer to repurchase approximately one-third of the current shares outstanding by year-end
2014. We also project that the tender offer will need to be completed at a premium to the current
stock price, which will enable investors to see sizeable returns over the intermediate-term while
limiting the downside in the stock.
Additionally, we believe that this is still the early innings of the companys goal to unlock
shareholder value CEO Craig Rogerson has a history of monetizing companies and has openly
stated that the rest of the company or its individual pieces could be sold. Our sum-of the-parts
analysis will show that the company is currently valued at a discount to its peers and similar
transactions, which supports the idea that additional value-creating transactions could occur.
These transactions should result in an additional 40-100% upside (after the tender offer is
completed) for shareholders that could be realized over the coming year. Even if these types of
events do not come to fruition, the company has been making big investments its two remaining
industrial segments, and late 2014/early2015 is the time in which these investments should start
to pay off. The growth prospects for these two businesses alone could result in a re-valuation of
the company, which currently trades at a discount to public peers due to an incorrect perception
of the business and its future outlook. Our blended valuation, using a public comps analysis and
a sum-of-the-parts analysis, gives us a $41 price target, representing 60% upside to the current
price. (See Appendix C for detailed write-up)
Catalysts See Appendix B for more detail on Catalysts
1. The companys plan to repurchase 1/3 of the outstanding shares through a tender offer by
year-end 2014.
2. Increased Capex Ends in 2014 and investments begin to be realized, resulting in
increased cash flow and improved metrics going forward.
3. IPP segment capacity expansion comes online in late 2014, with demand already waiting
to be filled, resulting in significant growth going forward.
4. IEP Emerald Innovation, the companys new technology, growth supported by recent
adoption within Dow Chemical and BASF along with European regulation to ban
previous technology, HBCD, by 2015.
5. MATS regulation implementation in 2015 sets up Chemtura for growth out of its bromine
business going forward.
Key Risks - See Appendix B for more detail on Risks
1. The inability to close the AgroSolutions deal
2. The inability to drive sales growth out of its IEP foams business
3. Increased regulatory scrutiny over the use of bromine foams
4. A delay in the opening of the companys China synthetics facility
Valuation
1. Public Comps Analysis (Going Concern) See Appendix A for Comps
Valuation (Based Upon 2016 Estimates)
Low Base High
Chemtura Corp

EPS Estimate $ 1.66 $ 2.56 $ 3.08
P/E Multiple 13.4x 15.8x 18.2x
Value $ 22.24 $ 40.45 $ 56.06
EBITDA Estimate ($ Millions) $ 360.0 $ 441.0 $ 488.0
EBITDA Multiple 9.4x 10.1x 10.9x
Value $ 42.83 $ 61.45 $ 78.43
Average Valuation $ 32.54 $ 50.95 $ 67.24
PV Discounted at 10% $ 26.89 $ 42.11 $ 55.57
Upside/Downside 5.5% 65.1% 117.9%

2. Sum-of-the-Parts Analysis (Company Sale) See Appendix A for Comps

3. Blended Valuation
Sum-of-the-Parts Analysis (Company Sale)
Low Base Bull Low Base Bull Low Base Bull
Industrial Performance Products 160.00 $ 190.00 $ 210.00 $ 7.0x 9.0x 12.8x 1,120.00 $ 1,710.00 $ 2,688.00 $
Industrial Engineered Products 125.00 $ 177.00 $ 185.00 $ 8.5x 9.6x 11.0x 1,062.50 $ 1,699.20 $ 2,035.00 $
Total Segment Value 285.00 $ 367.00 $ 395.00 $ 7.7x 9.0x 11.3x 2,182.50 $ 3,409.20 $ 4,723.00 $
Less: Corporate Expenses (including
$30MM Synergies) (60.00) $ (60.00) $ (60.00) $ 7.7x 9.0x 11.3x (462.00) $ (540.00) $ (678.00) $
Plus: Cash & Equivalents 545.00 $ 395.00 $ 245.00 $
Less: Debt (588.00) $ (588.00) $ (588.00) $
Less: Pension Obligations (239.00) $ (239.00) $ (239.00) $
Total Equity Value 1,438.50 $ 2,437.20 $ 3,463.00 $
Shares Outstanding 74.7MM 67.7MM 64.7MM
Price Per Share 19.26 $ 36.00 $ 53.52 $
Upside/Downside -24.5% 41.2% 109.9%
2015 EBITDA Valuation Multiple Value ($ in Millions)
Probability-Weighted Valuation
Low Base High Weight %
Going-Concern $ 26.89 $ 42.11 $ 55.57 80.0%
Company Sale $ 19.26 $ 36.00 $ 53.52 20.0%

Weighted Valuation $ 25.36 $ 40.89 $ 55.16

Appendix A Supplemental Materials
1A Use of Divestiture Proceeds
Capitalization ($ in Millions)
Before
After
AgroSolutions
Divestiture
After Debt
Paydown
Cash $ 400.00 $ 1,250.00 $ 1,046.00
PSP Stock $ - $ 50.00 $ 50.00
Cash & Equivalents $ 400.00 $ 1,300.00 $ 1,096.00

5.75% Notes $ 450.00 $ 450.00 $ 350.00
Term Loan $ 206.00 $ 206.00 $ 206.00
7.875% Notes $ 100.00 $ 100.00 $ -
Other Debt $ 32.00 $ 32.00 $ 32.00
Total Debt $ 788.00 $ 788.00 $ 588.00

Net Debt/(Cash) $ 388.00 $ (512.00) $ (508.00)
Tender Offer Scenarios ($ in Millions)
Low Base Bull
Current Shares Outstanding 96MM 96MM 96MM

Total Repurchase Amount $ 700.00 $ 850.00 $ 1,000.00
Tender Offer Price $ 30.00 $ 30.00 $ 30.00
Shares Repurchased 23.3MM 28.3MM 33.3MM

Remaining Shares Outstanding 74.7MM 67.6MM 64.7MM

2A Pro-Forma I ncome Statement
Pro-Forma Income Statement

2014 2015 2016
Industrial Performance
Products

Sales $ 1,028.0 $ 1,130.7 $ 1,300.4
Operating Income 123.4 158.3 208.1
Depreciation &
Amortization 30.0 32.0 34.0
EBITDA 153.4 190.3 242.1

Industrial Engineered
Products

Sales 851.2 893.7 920.6
Depreciation &
EBITDA 145.1 177.1 181.1

Chemtura AgroSolutions 359.2 - -
Operating Income 71.8 - -
Depreciation &
Amortization 12.0 - -
EBITDA 83.8 - -

Total Company EBITDA 400.3 385.4 441.1
Interest Expense 38.0 25.0 25.0
Earnings Before Taxes 164.3 177.4 231.1
Taxes - 17.7 57.8
Net Income 164.3 159.6 173.4
Free Cash Flow $ 169.3 $ 179.6 $ 208.4
Diluted Shares Outstanding 94.0 67.7 67.6

Earnings Per Share $ 1.75 $ 2.36 $ 2.56

3A Public Comps/Valuation
Public Comps
2014 2015 2016
Albemarle Corporation

EPS Estimates $ 4.32 $ 4.91 $ 5.42
EBITDA Estimates ($ Millions) $ 594.0 $ 650.0 $ 646.0
New Market Corporation

EPS Estimates $ 18.29 $ 19.88 $ 21.46
EBITDA Estimates $ 397.0 $ 423.0 $ 451.0

Low Base High
Chemtura Corp

EPS Estimate $ 1.66 $ 2.56 $ 3.08
Value $ 22.24 $ 40.45 $ 56.06
Value $ 42.83 $ 61.45 $ 78.43
PV Discounted at 10% $ 26.89 $ 42.11 $ 55.57

4A Sum-of-the-Parts Comps/Valuation
Industrial Performance Products Comparables
Type Date EBITDA Multiple Notes
Lubrizol Acquisition Buyout Mar-11 7x Acquired by
Berkshire Hathaway
New Market Corporation Current
Public
Company
Jul-14 12.8x
Hercules Sale Company
Sale
Nov-08 8.5x Bought by Ashland

Industrial Engineered Products Comparables
Albemarle Corporation Current
Public
Company
Jul-14 10.6x
Israel Chemicals Limited Current
Public
Company
Apr-14 11x
Amcol Acquisition Company
Sale
Mar-14 11x Bought by Minerals
Technologies, 8.5x
EBITDA multiple
after synergies

$30MM Synergies) (60.00) $ (60.00) $ (60.00) $ 7.7x 9.0x 11.3x (462.00) $ (540.00) $ (678.00) $
Less: Debt (588.00) $ (588.00) $ (588.00) $
Price Per Share 19.26 $ 36.00 $ 53.52 $
Appendix B Catalysts and Risks Defined
1B - Catalysts
1. The companys plan to repurchase 1/3 of the outstanding shares through a tender
offer by year-end 2014 - as a result of the AgroSolutions divestiture, the company plans
to use the proceeds from the transaction, along with excess cash on the balance sheet, to
return capital to shareholders. After speaking with management, we project the company
to repurchase between $700MM and $1B of stock by year-end 2014. Management
recently noted that they are looking at various options to return this cash, which include a
Tender Offer, a special dividend of up to $7 per share (27.5% return), or some
combination of the two. Considering the company has stated it believes its value is about
$40 per share and the fact that our analysis supports this conclusion, we believe that the
company will decide to repurchase about 1/3 of the current outstanding shares through a
tender offer by the end of this year. Chemtura is in essence 100% institutionally owned,
with most of this ownership coming from investors with long-term investment horizons.
Based upon this, combined with our sum-of-the parts valuation and the fact that the
company currently trades at a discount to its peers, we believe that the company will have
to tender the stock at a premium to its current price.
2. Increased Capex Ends in 2014 - After major investments over the past few years, the
companys remaining two businesses, Industrial Performance Products and Industrial
Engineered Products, are poised for growth starting in the back half of 2014. As
performance improves and capital expenditures normalize, we believe that these two
businesses alone will produce over $200MM in free cash flow annually.
3. IPP Segment Capacity Expansion - On the IPP side of the business, Chemtura has
decided to turn its focus to the synthetic lubricants market, and has been making big
investments over the past several years that should now start to pay off. Exxon Mobile is
currently the only other major player in this space, but Exxon has historically not sold its
synthetics out into the market, but instead put it in its own Mobile One product. This
creates a dynamic where Chemtura is the only game in town and therefore can get
better pricing on its product, thus increasing its operating margins. The companys new
synthetic lubricants facility in the Netherlands (which is located close to one of its biggest
customers, BP) recently opened and its synthetic lubricant facility in China will come
online this year. Management has stated that customers are chomping at the bit for this
new capacity to ramp up and expects to utilize it very quickly after it is up and running.
Management expects the IPP business to do about $1.3 billion is sales by 2016, with
margins in the 18-19% range.
4. IEP Emerald Innovation Growth - In the foams business (IEP business), 2013 was a
challenging year due to the fact that ICL aggressively entered the market by offering
reduced prices across the board. This dynamic/weak performance is one of the reasons
for the recent downward pressure on the stock, but we believe that the extent of this
downward pressure is unjustified. Though pricing pressure would normally be a
significant negative event for Chemtura, this risk is offset by the companys push into its
new technology, the Emerald Innovation series, which commands higher prices and is an
area in which Chemtura is clearly ahead of the competition from a technological
standpoint. The Emerald series provides the same flame retardant benefits of other
bromine foam products, but does so in a way that is cleaner for the environment. Both
Dow Chemical and BASF have recently adopted the technology and Europe could ban
the use of the previous technology, HBCD, by 2015.
5. MATS Regulation - The other major piece of Chemturas IEP business is the use of
bromine in trapping mercury emissions. When the companys GeoBrom product is used
to treat coal that is used in power generation, mercury emissions are typically reduced by
98%. Though there is no catalyst for growth in this business during 2014, 2015 should be
a big year for GeoBrom due to the Mercury and Air Toxics Standards (MATS) which
will then go into effect. These standards, which require US coal power generation and oil
fleets to meet certain emission standards or close down by April 2015, were being
contested on the grounds that the EPA did not have the power to enact such a law. On
April 29 of this year, the courts ruled that the EPA does indeed have the power to enact
the law and can proceed with its 2015 implementation. This announcement can be
considered a major win for Chemtura; with the high costs associated with retrofitting a
power plant, Chemturas GeoBrom product provides a strong, value-oriented
alternative. Additionally, this removes the risk that the regulation could be pushed out
into 2016 or beyond.
2B - Key Risks
1. The inability to close the AgroSolutions deal - As a mitigate to this risk, the
AgroSolutions business, which has been growing revenues at 9-10% annually, as a going-
concern piece of Chemtura would add about $120MM in EBITDA to our 2015 forecast
and would result in 2015 EPS of about $2.50 (company would currently be trading at
5x 2015 EBITDA and 9x 2015 EPS, both below peer averages). Platform Specialty
Products has already raised $300MM of the needed cash for this transaction, and is also
backed by a large investment from Bill Ackman, which we believe to be a positive for
Platforms ability to raise the additional funding for the deal.
2. The inability to drive sales growth out of its IEP foams business - This risk would
impair our valuation of the company, but we do note that even under a flat revenue
scenario, operating income will improve in 2014 due to cost cutting initiatives that have
been put into place.
3. Increased regulatory scrutiny - in 2014, California passed legislation requiring tests to
be done with regards to the health and safety risks of materials used in upholstered
furniture. This could directly affect Chemturas bromine foam products used in its flame
retardant upholstery filling line. Management has been open to address this issue, and
sees little possibility of the companys products being affected by the new regulation.
4. A delay in the opening of the companys China synthetics facility this would push
out the ramp-up in revenues of the synthetics business due to capacity constraints.
Appendix C Full Write-up
Long: Chemtura Corp
Executive Summary
Over the past several years, the management team at Chemtura has done a great job of
divesting non-core assets, improving its balance sheet, cutting costs, and streamlining its
business to become a pure-play on industrial specialty chemicals. Yet, these actions seem
to have gone unnoticed as the company still trades at a significant discount to its peers.
The recent announcement of the sale of its AgroSolutions business will allow the
company to both pay off debt, resulting in annual interest expense savings of $13.6MM,
and initiate a stock repurchase tender offer for approximately one-third of the outstanding
shares. We expect this tender offer to be completed at a 20% premium to the current
stock price, which we believe will be finalized by year-end 2014.
After the tender offer is completed, we expect to company to continue to pursue the sale
of the remaining businesses. CEO Craig Rogerson has a history of monetizing companies
and has openly (and recently) stated that he could look to pursue this option with
Chemtura. Our sum-of-the-parts analysis supports 40-100% upside from the current stock
price.
Even without a sale of the business or its remaining pieces, we still believe there is
attractive upside in the stock. The company has made significant investments in its
remaining two industrial businesses, Industrial Performance Products (IPP) and Industrial
Engineered Products (IEP), and each have their own specific catalysts upcoming that will
drive future growth. We believe that as investors take notice of this growth and the value-
creation events the company has recently completed, the company will be valued more
in-line with its peers, which would result in 60% upside to the current stock price.
Investment Thesis
We believe that Chemtura Corp is a misunderstood company whose business today is much
different than it was only a few years ago. Once an over-leveraged, broad-based chemicals
company, Chemtura has been transforming its business through asset divestitures to improve its
balance sheet and become a pure-play on the industrial space. The companys recent
announcement of its divestiture of the AgroSolutions business will enable the company to reach
a net-cash position for the first time since returning to the public markets in 2010, and will set up
the company to pay down expensive debt and return cash to shareholders. We project that the
company will use the proceeds of AgroSolutions transaction, along with excess cash on the
balance sheet, to pay down $200MM in debt (which will reduce interest expense by $13.6MM
annually) and to initiate a tender offer to repurchase approximately one-third of the current
shares outstanding by year-end 2014. We also project that the tender offer will need to be
completed at a premium to the current stock price, which will enable investors to see sizeable
returns (20%) over the intermediate-term while limiting the downside in the stock.
Additionally, we believe that this is still the early innings of the companys goal to unlock
shareholder value CEO Craig Rogerson has a history of monetizing companies and has openly
stated that the rest of the company or its individual pieces could be sold. Our sum-of the-parts
analysis will show that the company is currently valued at a discount to its peers and similar
transactions, which supports the idea that additional value-creating transactions could occur.
These transactions should result in an additional 40-100% upside (after the tender offer is
completed) for shareholders that could be realized over the coming year. Even if these types of
events do not come to fruition, the company has been making big investments its two remaining
industrial segments which should start to pay off in the coming year, and could result in a re-
valuation of the company based solely on its own merits.
Business Overview
Chemtura Corporation traces its roots to its predecessor, Crompton & Knowles, which was
founded in 1900 and entered the specialty chemicals market in 1954. In the mid-1990s, the
company decided to exclusively focus on specialty chemicals, and completed the acquisition of
Witco Corporation in order to grow this business. In 2005, the company merged with Great
Lakes Chemical Corporation and changed its name to Chemtura.
In 2009, with an over-leveraged balance sheet and little liquidity, the company filed for Chapter
11 bankruptcy reorganization. Following the subsequent Chapter 11 filing of its Canadian
subsidiary, the company re-emerged from bankruptcy protection and went public in the latter
half of 2010. At the time of the IPO, the company was still over-leveraged and lacked the focus
necessary to compete effectively.
CEO Craig Rogerson made it a priority to divest non-core assets in order to improve the balance
sheet and re-focus the business going forward. In April of 2013, Chemtura closed on the sale of
its Antioxidant & UV Stabilizers business for $200MM. Later that year, the company closed on
the sale of its Consumer Products segment for $315MM. Proceeds from these transactions were
used to improve the balance sheet and return capital to shareholders (the company has bought
back $110MM of stock to date). In April of this year, the company announced that it had reached
an agreement to sell its AgroSolutions business for $1 billion, with an expected closing in the
second half of 2014.
The ending result of these moves is a company with ample liquidity and an improved focus on
the industrial segment of the market. The company has made major investments over the past
few years in its remaining two businesses, Industrial Performance Products (IPP) and Industrial
Engineered Products (IEP), and the second half of 2014/FY2015 is the time in which these
investments will start to be realized.
CHMTs Industrial Performance Products (IPP) segment focuses on the production of synthetic
lubricants, additives, and urethanes. The lubricant products are used in variety of industrial
applications, but the biggest driver of this business is the automotive industry, where the
company produces petroleum additives and gear/engine lubricants. Growth in this segment will
come from the expansion of its high-end synthetics business (where there is only one other
competitor, who normally does not sell its products into the market) and its investments in
production capacity.
In the Industrial Engineered Products (IEP) business, Chemtura competes in an Oligopoly, with
the other two major players being Albemarle Corporation and Israel Chemicals Limited (ICL).
The companys products in this segment involve the use of bromine, which exists as bromide
salts in crustal rock within the earth. Although Chemtura only controls one-sixth of the bromine
market, it is the clear leader the bromine foams market (flame retardants) and mercury emissions
prevention. When bromine is isolated, it can be combined with other molecules during the
production of polymers to form materials with excellent flame retardant properties (such as
foams). When bromine treated materials burn, they produce hydrobromic acid which interferes
with the oxidation and combustion reactions of fire. Bromine can also be used to treat coal
during power generation, and has been shown to reduce Mercury emissions by up to 98%.
Additionally, bromine intermediaries are used during the manufacturing of numerous industrial,
consumer, and energy products. It can be used to produce very dense fluids used in the oil and
gas industries, as well as organometallics, which are a special group of metals used in
polymerization reactions. Examples of this would be in the production of glass coatings,
semiconductors, LEDs, and pharmaceutical intermediates.
Once a broad-based chemicals company with little direction, Chemtura has become one of the
leaders in the industrial specialty chemical industry. This focus was reinforced earlier this year
when the company announced the sale of its agricultural chemicals segment.
AgroSolutions Transaction a Key Catalyst for Tender Offer
On April 17, 2014, the company announced that it had reached an agreement with Platform
Specialty Products Corporation to sell its AgroSolutions business, the companys agricultural
chemicals segment, for $1 billion ($950MM in cash and $50MM in stock, which will have a 6-
month lock-up period attached to it). Because Chemtura has significant NOLs it can use to offset
taxes on the sale, the company plans to bring in proceeds of about $850MM out of the $950MM
in cash it will receive. Management does not anticipate any regulatory hurdles to the deal and
expects to take $15-20MM of stranded costs out of its business once the sale occurs.
This transaction will return the company to a net-cash position, something that company has not
seen since it re-emergence from bankruptcy in 2010. We believe that part of the reason for the
companys discounted valuation as compared to peers is due to its previously weak balance
sheet. Once the AgroSolutions transaction is complete (second half of 2014), we believe that
investors will re-value the company more in-line with peers due to its improved liquidity
position.
The catalyst of greater significance as a result of the AgroSolutions divestiture is the companys
plan to use the proceeds from the transaction, along with excess cash on the balance sheet, to pay
down expensive debt and return cash to shareholders. On the debt side of the balance sheet, the
company plans to pay off $200MM of debt. The companys 7.875% Notes become callable at
104% of par in September of 2014, and we project that this will be the first piece of the capital
structure which the company pays off. We also project that the company will then use an
additional $100MM to pay off a portion of its 5.75% Notes. Below is the companys pro-forma
balance sheet after debt pay downs:
Capitalization ($ in Millions)
Before After
After Debt
Paydown
Cash $ 400.00 $ 1,250.00 $ 1,046.00
PSP Stock $ - $ 50.00 $ 50.00
Cash & Equivalents $ 400.00 $ 1,300.00 $ 1,096.00

5.75% Notes $ 450.00 $ 450.00 $ 350.00
Term Loan $ 206.00 $ 206.00 $ 206.00
7.875% Notes $ 100.00 $ 100.00 $ -
Other Debt $ 32.00 $ 32.00 $ 32.00
Total Debt $ 788.00 $ 788.00 $ 588.00

Net Debt/(Cash) $ 388.00 $ (512.00) $ (508.00)

After the debt transactions are completed, the company will save $13.6MM in annual interest
expense (96MM shares outstanding, which we believe will be reduced to approximately 67.7MM
shares by the end of this year).
After speaking with management, we also project the company to repurchase between $700MM
and $1B of stock by year-end 2014. The company has already begun to repurchase stock in the
open market, buying $110MM of stock since 2011, but has openly acknowledged that it will
need to look at other options in order to repurchase a significant amount of the float after the
AgroSolutions transaction is completed. Management recently noted that they are looking at
various options to return this cash, which include a Tender Offer, a special dividend of up to $7
per share (27.5% return), or some combination of the two. Considering the company has stated it
believes its value is about $40 per share and the fact that our analysis supports this conclusion,
we believe that the company will decide to repurchase about 1/3 of the current outstanding
shares through a tender offer in order to complete its desired share repurchase activity. Chemtura
is in essence 100% institutionally owned, with most of this ownership coming from investors
with long-term investment horizons. Based upon this, combined with our sum-of-the parts
valuation and the fact that the company currently trades at a discount to its peers, we believe that
the company will have to tender the stock at a premium to its current price, which we forecast to
be in the $30 range, in order to complete a transaction in the $700MM-$1B range. This event
would provide investors a 20% return by years end without any re-valuation of the company.
Tender Offer Scenarios ($ in Millions)
Low Base Bull
Current Shares Outstanding 96MM 96MM 96MM

Total Repurchase Amount $ 700.00 $ 850.00 $ 1,000.00
Tender Offer Price $ 30.00 $ 30.00 $ 30.00
Shares Repurchased 23.3MM 28.3MM 33.3MM

Remaining Shares Outstanding 74.7MM 67.6MM 64.7MM

Though the recent announcement of the AgroSolutions unit sale is an exciting inflection point for
the company, we believe that there is additional upside in the stock after the tender offer is
completed. Once this transaction is finalized, the company will have gone from an over-
leveraged, broad-based chemicals play to a streamlined, niche-focused industrial chemicals
company. Not only have the recent divestitures helped reduce costs and given the company a
better focus going forward, they also make the company a more attractive investment for both
public equity investors as well as other companies as an acquisition target.
Additional Value Remains after AgroSolutions Transaction
Even though the tender offer is an attractive scenario for shareholders in its own right, we
believe that the real value in Chemtura is found in the business that remains after the sale.
After major investments over the past few years, the companys remaining two businesses,
Industrial Performance Products and Industrial Engineered Products, are poised for growth
starting in the back half of 2014. As performance improves and capital expenditures normalize,
we believe that these two businesses alone will produce over $200MM in free cash flow
annually, which gives us confidence in the companys plan to return excess cash to shareholders
this year.

Source: Chemtura Investor Presentation
Both the IPP and IEP segments have their own specific catalysts that should drive future growth.
On the IPP side, pending capacity expansion and technological innovation should drive both
revenue growth and improved operating margins. Chemtura has decided to turn its focus in this
segment to the synthetic lubricants business, and has been making big investments over the past
several years that should now start to pay off. Synthetic lubricants increase the viscosity of motor
oils, which allow for longer oil change ranges or for use in higher-end vehicles. Exxon Mobile is
currently the only other major player in this space, but Exxon has historically not sold its
synthetics out into the market, but instead put it in its own Mobile One product. This creates a
dynamic where Chemtura is the only game in town and therefore can get better pricing on its
product, thus increasing its operating margins.
On the revenue side, the company will benefit from its investments in added capacity. Its new
synthetic lubricants facility in the Netherlands (which is located close to one of its biggest
customers, BP) opened at the end of 2013 and its synthetic lubricant facility in China will come
online in 2014. Management has stated that customers are chomping at the bit for more
capacity to come online and expects to utilize the new capacity very quickly after it is up and
running. Management expects the IPP business to do about $1.3 billion is sales by 2016, with
margins in the 18-19% range. After reviewing the new capacity and completing a sensitivity
analysis under various scenarios, we believe that it is very plausible that management hits this
goal, and are therefore using it as our base-case assumption.
In the IEP business, Chemtura competes in an Oligopoly, with the other two major players being
Albemarle Corporation and Israel Chemicals Limited (ICL). Although Chemtura only controls
one-sixth of the bromine market, it is the clear leader the foams market (flame retardants) and
mercury emissions prevention market. In the foams business, 2013 was a challenging year due to
the fact that ICL aggressively entered the market by offering reduced prices across the board.
This dynamic/weak performance is one of the reasons for the recent downward pressure on the
stock, but we believe that the extent of this downward pressure is unjustified. Though pricing
pressure would normally be a significant negative event for Chemtura, this risk is offset by the
companys push into its new technology, the Emerald Innovation series, which commands higher
prices and is an area in which Chemtura is clearly ahead of the competition from a technological
standpoint. The Emerald series provides the same flame retardant benefits of other bromine foam
products, but does so in a way that is cleaner for the environment. Both Dow Chemical and
BASF have recently adopted the technology and Europe could ban the use of the previous
technology, HBCD, by 2015. Also, because of the weak results in 2013, the company took steps
to take costs out of the business, including the elimination of many management positions in
which it found redundancies. Even if the adoption of the new technology is not as fast as we
project, the company recently noted that pricing has improved for HBCD this year. This, along
with cost cuts made by management last year will help this business improve results in 2014 over
2013s disappointment.
The other major piece of Chemturas IEP business is the use of bromine in trapping mercury
emissions. When the companys GeoBrom product is used to treat coal that is used in power
generation, mercury emissions are typically reduced by 98%. Though there is no catalyst for
growth in this business during 2014, 2015 should be a big year for GeoBrom due to the Mercury
and Air Toxics Standards (MATS) which will then go into effect. These standards, which require
US coal power generation and oil fleets to meet certain emission standards or close down by
April 2015, were being contested on the grounds that the EPA did not have the power to enact
such a law. On April 29 of this year, the courts ruled that the EPA does indeed have the power to
enact the law and can proceed with its 2015 implementation. This announcement can be
considered a major win for Chemtura; with the high costs associated with retrofitting a power
plant, Chemturas GeoBrom product provides a strong, value-oriented alternative. Additionally,
this removes the risk that the regulation could be pushed out into 2016 or beyond. This new
regulations impact on Chemtura cannot be understated; this is an area in which there has been
very little investment by customers over the last several years, and the new mercury emission
standards should provide a multi-year runway of growth for the GeoBrom business.
The wildcard for the IEP business is the possibility to close on the acquisition of Solaris
ChemTech. In September 2012, Chemtura announce an agreement to purchase from Solaris
certain assets used in the manufacturing and distribution of bromine and bromine chemicals for
cash consideration of $142 million and the assumption of certain liabilities, but the companies
have been unable to gain government approval to close the transaction. If Chemtura is able to
close this deal, it would be an unexpected, major catalyst for the stock as it would increase the
supply of bromine available to the company. Because of the companys inability to close on this
deal, we are assigning no value to a positive outcome in our analysis.
As we stated above, we believe managements assumptions for the IPP business are reasonable
based upon increased capacity and growth in its synthetics business. On the IEP side, we expect
a rebound in both revenues and margins in 2014 based upon the cost savings initiatives, growth
in the companys Emerald Innovation series, and pending Mercury Control Standards taking
shape as we enter 2015. These two remaining units alone will produce between $150MM and
$175MM in free cash flow (6-7% free cash flow yield) through FY2014, at which point free cash
flow generation should improve as the increased investment period ends and the company
realizes the benefits of its recent investments. As these projections come to fruition over the
coming year, along with the share repurchase tender offer, we believe that investors will re-value
Chemtura in-line with its peers. Below, we have provided our outlook for the business along
with comparable company multiples:

Pro-Forma Income Statement

2014 2015 2016
Industrial Performance
Products

Sales $ 1,028.0 $ 1,130.7 $ 1,300.4
Depreciation &
EBITDA 153.4 190.3 242.1

Industrial Engineered
Products

Sales 851.2 893.7 920.6
Depreciation &
EBITDA 145.1 177.1 181.1

Chemtura AgroSolutions 359.2 - -
Operating Income 71.8 - -
Depreciation &
Amortization 12.0 - -
EBITDA 83.8 - -

Total Company EBITDA 400.3 385.4 441.1
Interest Expense 38.0 25.0 25.0
Earnings Before Taxes 164.3 177.4 231.1
Taxes - 17.7 57.8
Net Income 164.3 159.6 173.4
Free Cash Flow $ 169.3 $ 179.6 $ 208.4
Diluted Shares Outstanding 94.0 67.7 67.6

Earnings Per Share $ 1.75 $ 2.36 $ 2.56

Chemtura is actually a collection of many unique assets that fall under two business segments, so
we will use a blended valuation of Albemarle (to represent IEP) and New Markets Corporation
(to represent IPP) to come up with our valuation of Chemtura.

Public Comps
2014 2015 2016
Albemarle Corporation

EPS Estimates $ 4.32 $ 4.91 $ 5.42
EBITDA Estimates ($ Millions) $ 594.0 $ 650.0 $ 646.0
New Market Corporation

EPS Estimates $ 18.29 $ 19.88 $ 21.46
EBITDA Estimates $ 397.0 $ 423.0 $ 451.0

Low Base High
Chemtura Corp

EPS Estimate $ 1.66 $ 2.56 $ 3.08
Value $ 22.24 $ 40.45 $ 56.06
Value $ 42.83 $ 61.45 $ 78.43
PV Discounted at 10% $ 26.89 $ 42.11 $ 55.57

We believe that using a blended valuation of Albemarle and New Markets Corporation is the
best way to capture both pieces of Chemturas business. We also believe that the proper way to
value Chemtura is to discount back our 2016 projections because 1) by 2016, the company will
have used their remaining NOLs, so we will be valuing the company based off a normalized tax
rate, 2) valuing the companies like-for-like in 2016 helps us to adjust for different growth rates,
and 3) by the beginning of 2016, all activities related to the sale of AgroSolutions, the tender
offer, and company-specific catalysts will be completed, providing us a full year of realistic
future business results (note: for the next 15+ years, Chemtura will be able to use $60-70MM in
NOLs annually, which equals $1 per share in earnings before taxes after share repurchases are
completed). As you can see, when Chemtura becomes valued in-line with peers, we believe the
stock should be valued 65% higher than its current price at todays fair value, and we also see
little downside in the stock at its current levels.
Further Monetization Could Occur
CEO Craig Rogerson has made no secret to the fact that he may look to further monetize the
business after the AgroSolutions transaction is completed, even hinting at this notion during a
recent conference presentation. This kind of action would make sense considering Mr.
Rogersons background prior to his role at Chemtura, Mr. Rogerson was the CEO of the
specialty chemicals company Hercules, and was the driving force behind the companys sale to
Ashland in 2008. Before his role as CEO, Mr. Rogerson served as the general manager of
BetzDearborn, the industrial water treatment business that Hercules sold to General Electric in
2002. Mr. Rogerson also has a vested interest in this outcome; he currently owns approximately
500,000 shares of the companys stock, an additional 315,000 shares that have not yet vested,
and 400,000 options that are yet to be exercised (with an average strike price around $18).
Because of the potential for further asset divestitures, or even the possible sale of the entire
company, we believe that it is best to value Chemtura by using a sum-of-parts-analysis. Below is
a comparable analysis for each of the companys remaining segments:
Industrial Performance Products Comparables
Lubrizol Acquisition Buyout Mar-11 7x Acquired by
Berkshire Hathaway
New Market Corporation Current
Public
Company
Jul-14 12.8x
Hercules Sale Company
Sale
Nov-08 8.5x Bought by Ashland

Based upon comparable transactions, we will use a 7.0-12.8x EBITDA range to value the IPP
unit.
Industrial Engineered Products Comparables
Albemarle Corporation Current
Public
Company
Jul-14 10.6x
Israel Chemicals Limited Current
Public
Company
Apr-14 11x
Amcol Acquisition Company
Sale
Mar-14 11x Bought by Minerals
Technologies, 8.5x
EBITDA multiple
after synergies

Based upon comparable transactions, we will use an 8.5-11.0x EBITDA range to value the IEP
unit. As you can see we believe the value of the remaining two businesses are worth about $2.4
billion. When we combine these values with the AgroSolutions sale and adjusting for cash, debt
and pension obligations, we could see the equity value of the business being about $4 billion,
although the current enterprise value is only $2.8 billion.
Based upon the individual values of the remaining segments of Chemtura, we have provided a
sum-of-the-parts valuations based upon the sale of the entire business, in which we include about
$30MM in projected cost synergies in the transaction, which we believe to be conservative as
$15-20MM are the stranded costs from AgroSolutions:

And as you can see from this slide, if the company were to sell the business and if we were to
include $30MM in synergies in the sale, with $15-20MM of this coming from the stranded costs
of AgroSolutions), we get a value of about $36 on the business.
Valuation
Below, we have provided our probability weighted valuation for the company:
Probability-Weighted Valuation
Low Base High Weight %
Going-Concern
$ 26.89 $ 42.11 $ 55.57 80.0%
Company Sale
$ 19.26 $ 36.00 $ 53.52 20.0%

Weighted Valuation $ 25.36 $ 40.89 $ 55.16

Overall, we believe that the value of Chemturas business is worth about $41, representing 60%
upside from its current price. We believe that over the next 9 months, investors will realize 20%
$30MM Synergies) (60.00) $ (60.00) $ (60.00) $ 7.7x 9.0x 11.3x (462.00) $ (540.00) $ (678.00) $
Less: Debt (588.00) $ (588.00) $ (588.00) $
Price Per Share 19.26 $ 36.00 $ 53.52 $
of this value through a stock repurchase tender offer, with the rest occurring in 2015 as the
company improves results and possibly looks to monetize the rest of the business.
Conclusion
Chemtura is well past its prior issues bankruptcy, an over-leveraged balance sheet, and a lack
of focus. Today, the company is a streamlined, industrial chemicals company with emerging new
technologies. The balance sheet has been cleaned up, now to the point where the AgroSolutions
divestiture gives us the catalyst necessary to make sizable returns over the intermediate term.
Over the next year, we expect more investor to take notice of the improvements at Chemtura,
which should cause the stock to be re-valued in-line with its peers. We also believe that there is a
realistic chance that company puts itself up for sale over the coming year or looks to sell off its
individual assets. In both scenarios, we should see additional upside in the stock over the next 12
months.

Capitalize For Kids: Third Place Winner - Long Chemture Corp.

Încărcat de

Informații document

Titlu original

Drepturi de autor

Formate disponibile

Partajați acest document

Partajați sau inserați document

Opțiuni de partajare

Vi se pare util acest document?

Este necorespunzător acest conținut?

Drepturi de autor:

Formate disponibile

Capitalize For Kids: Third Place Winner - Long Chemture Corp.

Încărcat de

Drepturi de autor:

Formate disponibile

Third Place Winner

Long Chemtura Corp.

S-ar putea să vă placă și