22:51 PM | March 17, 2014 | —Vincent Valk and Ian Young
FMC plans to separate into two independent public companies by spinning off its lithium and soda ash businesses. Current FMC chairman and CEO Pierre Brondeau will continue to lead New FMC, which will retain FMC’s higher-margin agricultural solutions and health and nutrition segments. A name for New FMC will be determined in the coming months. The other company, FMC Minerals, will comprise FMC’s soda ash and lithium businesses.
The decision, the result of a process that started about a year ago, arose from tension between FMC’s technology-intensive agricultural solutions and health and nutrition business on one side and its more cyclical, volume-driven—but profitable—minerals business on the other. “The shareholders who invest in ag and health and nutrition expect predictability and growth,” Brondeau tells CW. “But, if I invest in the minerals business, despite the high return, I increase cyclicality and reduce predictability.”
FMC expects the split, which remains subject to final board approval, will take the form of a tax-free distribution of shares to existing shareholders. FMC expects to complete the separation in early 2015 and that each company will be listed on the New York Stock Exchange.
FMC Minerals’ leadership team will be led by a new CEO, who will be announced in the coming months. Andrew Sandifer, FMC’s current v.p./strategic development, will join the FMC Minerals executive leadership team as CFO. Paul Graves, current FMC executive v.p. and CFO, will keep that position at New FMC.
While FMC has not faced any activist pressure to split, it had one set of shareholders interested in minerals’ cyclical, but high, returns and one interested in the predictability of ag and health. This situation created challenges for management, especially as the company saw a need for capital investments in lithium and soda ash. “You cannot have those two categories of shareholders pulling in very different directions,” Brondeau says. During a conference call, Brondeau told investors that the minerals business has been “undermanaged” and has “more potential than we have allowed it.”
FMC opted to spin off, rather than sell, the minerals business because of tax advantages, Brondeau says. “It would require a divestiture with a very large premium [to compete with] this structure,” he adds.
Post spin-off, the minerals business will focus on expansion opportunities, Sandifer has told investors. “We have a good opportunity in the near-term for … productivity improvements and debottlenecking,” he says. Longer-term, larger capacity expansions are on the table, and “the combination of energy storage potential in lithium and the cost advantage for soda ash will bode well for minerals,” Sandifer says.
New FMC will largely continue on the growth strategy currently articulated by FMC, which focuses on the ag and health divisions. The company will look into expanding into adjacent markets, particularly in health and nutrition, where Brondeau sees the personal-care and pet food markets as logical extensions of FMC’s capabilities. “Those are the adjacent areas we are looking at,” he says. “Today … I do not want to diversify much beyond those markets. You can create a $7-billion company over time [in those markets].” FMC will remain focused on the acquisition of product lines and technologies for the ag business, in which it tries to minimize its physical asset base, while pursuing $100500 million deals in health and nutrition. However, the pace of acquisitions—particularly the larger health and nutrition deals—is likely to slow in 2014 as the company focuses on executing the minerals spin-off, Brondeau says.
FMC expects revenue for New FMC to be about $3.35 billion this year, up 16% over 2013, and Ebit to total about $815 million, up 15% over 2013. About 43% of New FMC’s revenues will be in Latin America, a situation Brondeau says he is comfortable with because it is focused on the ag business in Brazil. “The ag industry in Brazil is almost a country within a country; it is so core to everything in Brazil, and it is a very solid industry,” he says. FMC expects FMC Minerals, consisting of the alkali chemicals and lithium businesses, to generate 2014 revenue of about $1 billion, up 7% from 2013, and Ebit of about $150 million, up 19%.
FMC will review strategy for the two standalone companies over the coming months, including a detailed review with its board in July. The two management teams will aim to face investors and announce five-year goals at an investor day towards the end of this year, Brondeau says. For New FMC, the ag business can grow its revenues at 15%/year over the next several years, while the health and nutrition business can grow at 810%/year, he adds.
“We believe that creating two companies, each with its own publicly listed equity, will enable the management of each company to pursue its own strategy,” Brondeau says. “This will give each company greater focus on the success factors that are most important to its business and allow the adoption of a capital structure that is appropriate to its business profile.”