FMC currently operates three distinct segments:
- Agricultural Solutions – includes crop protection and pesticides
- Health & Nutrition – ‘develops products from natural sources that provide texture, stability and natural color solutions for food applications, while also producing binders, coatings and high-purity, high-concentration omega-3 for pharmaceutical and nutraceutical applications’
- Minerals – includes Alkali Chemicals (soda ash) and Lithium
The first two segments will form the ‘New FMC’ which will be led by current FMC CEO and Chairman Pierre Brondeau. The company expects 2014 combined revenue for ‘New FMC’ of ~$3.35b (+16% over 2013) and earnings of ~$815m (+15 percent over 2013). A very solid growth profile which the company expects to continue in the future.
The Minerals segment will become FMC Minerals, a leader in both alkali chemicals and lithium. For a little more color:
The Alkali Chemicals business is the largest global producer of natural soda ash, using low-cost technologies to extract trona ore to produce soda ash and related products used in the glass, chemical processing and detergent industries. The Lithium business is the only brine-to-metals producer with a broad global product portfolio, selling into the energy storage, pharmaceuticals, polymers and industrial markets. Underlying market demand for lithium remains strong, driven by growth in energy storage from electric vehicle adoption and other applications.
The minerals company expects 2014 revenues of ~$1b (+7% over 2013) and earnings of ~$153m (+19% over 2013). While also growing nicely, this business is believed to be more cyclical in nature and surprise, surprise, has lower margins than FMC’s other segments. FMC believes the company is now strong enough and generates enough FCF that it will be able to pursue investment opportunities independently. Not surprisingly, speculation about possible targets, specifically in the lithium space, has already begun. I would expect to hear more about the company’s strategy after it hires a new CEO. In the meantime, its CFO and COO roles have already been filled by current FMC execs with Andrew Sandifer, FMC’s VP of Strategic Development and Ed Flynn filling those roles, respectively.
Shortly after the announcement, Barron’s had a very favorable piece on the company highlighting several sum of the parts valuations with ranges from the low to high ‘$90’s’ per share. Although the name popped on the spinoff announcement, that still represents quite a bit of upside from today’s price. The thinking is that both companies are exposed to favorable long term trends. The new FMC is tied to the world’s growing food needs as the population and middle class grows and the minerals business’ strong lithium position has many excited due to storage needs. It’s amazing what being linked to Tesla (TSLA) can do for the excitement factor. While it seems like this is a classic ‘good asset’ vs. ‘bad asset’ transaction, the bad doesn’t seem so terrible and is probably worth a much closer look.
Disclosure: Author holds no position in any stock mentioned.