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Assessing Dinakar Singh and TPG-Axon’s 4Q13 positions

Part 3
Assessing Dinakar Singh and TPG-Axon’s 4Q13 positions (Part 3 of 7)

Singh’s TPG-Axon Capital Management buys a new stake in Huntsman

TPG-Axon Capital Management and Huntsman

TPG-Axon Capital Management’s notable positions traded last quarter include new stakes in Equinix Inc. (EQIX), Huntsman Corp. (HUN), Hertz Global Holdings Inc. (HTZ), and Spirit Aerosystems (SPR) as well as sold positions in in Twenty-First Century Fox-A (FOXA) and CONSOL Energy Inc. (CNX).

TPG-Axon started a new position in Huntsman Corp. (HUN) that accounts for 5.91% of the fund’s 4Q portfolio.

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Huntsman is a global manufacturer of differentiated organic chemical products and of inorganic chemical products. It operates in five segments: Polyurethanes, Performance Products, Advanced Materials, Textile Effects, and Pigments. The company’s products are used in a wide range of applications, including those in the adhesives, aerospace, automotive, construction products, personal care and hygiene, durable and non-durable consumer products, electronics, medical, packaging, paints and coatings, power generation, refining, synthetic fiber, textile chemicals, and dye industries. It’s a leading global producer in many of its key product lines, including MDI, amines, surfactants, epoxy-based polymer formulations, textile chemicals, dyes, maleic anhydride, and titanium dioxide.

Huntsman’s 4Q results beat analyst estimates. Net income attributable to Huntsman Corporation was $41 million or $0.17 per share compared to a net loss of $40 million in 4Q12. Revenue was up 3.3% to $2.71 billion. Adjusted EBITDA was up 28% to $313 million. Management said “aggressive self-help measures that have re-focused efforts on key markets and lowered costs are yielding benefits to the bottom line. These restructuring efforts are expected to contribute an additional approximate $60 million of future EBITDA.”

The Polyurethanes, Performance Products, Textile Effects, and Pigments divisions saw increased revenues. The Advanced Materials division revenue declined due to lower sales volumes. However, under Polyurethanes, Propylene Oxide (or PO)/Methyl Tertiary Butyl Ether (or MTBE) average selling prices decreased, primarily due to less favorable market conditions, whereas methylene diphenyl diisocyanate (or MDI) urethane average selling prices were essentially flat.

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In 3Q 2013, Huntsman announced an agreement with Rockwood Holdings, Inc. to acquire its Performance Additives and Titanium Dioxide businesses for approximately $1.1 billion in cash and the assumption of approximately $225 million in unfunded pension liabilities. It expects $130 million in synergies will come from combining the businesses. The deal will make Huntsman the second-largest global producer of Ti02 and inorganic color pigments, after DuPont. Huntsman expects to unlock shareholder value through an IPO of its new pigments business within two years of closing the Rockwood acquisition. The acquisition is currently undergoing European Commission review. A Reuters report said the EC is concerned that the transaction might lead to a reduction in competition in the $4 billion market for sulphate-based titanium dioxide in Europe. Sulphate-based titanium dioxide is used for products including toothpaste, window frames, and paper.

Management said on the earnings call that despite headwinds in the raw materials and severe winter weather in North America, Huntsman expects earnings to improve due to economic improvements in Europe and the company’s ongoing restructuring efforts. “We are investing for long term growth and are progressing well with the previously disclosed projects that will further increase our future EBITDA by nearly $200 million. We are enthused by the positive developments taking place within our business and look forward to delivering further value,” the earnings release stated.

To find out more about the latest 13Fs for hedge fund ownership, see the Market Realist series Renaissance Technologies’ 4Q13 positions in Disney and more.

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