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Overview: Greenlight Capital's 2Q positions

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Part 5
Overview: Greenlight Capital's 2Q positions PART 5 OF 7

Why Greenlight Capital establishes new position in Chemtura

Greenlight Capital and Chemtura

David Einhorn’s Greenlight Capital initiated new positions in Civeo Corp. (CVEO), AerCap Holdings NV (AER), Time Inc. (or TIME), and Chemtura Corp. (CHMT). It added to its positions in SunEdison Inc. (SUNE) and Lam Research (LRCX).

Why Greenlight Capital establishes new position in Chemtura

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Greenlight disclosed a new position in Chemtura Corp. (CHMT). It accounted for 1.06% of the fund’s 2Q14 portfolio.

Philadelphia-based Chemtura Corp. is a specialty chemical company with global operations. The majority of its chemical products are sold to industrial manufacturing customers for use as additives, ingredients, or intermediates that add value to their end products.

For the year ending December 31, 2013, Chemtura’s global net sales were $2.2 billion. During this time period, 44% of its net sales were generated in the United States and Canada, 28% were from Europe and Africa, 19% were from Asia and the Pacific, and 9% were from Latin America.

Chemtura’s key segments include:

  • The Industrial Performance Products segment develops, manufactures, and markets specialty performance chemicals, formulations, and polymers. The major product offerings of this segment are base-stocks, additive components, finished synthetic lubricants, specialty greases, cast urethane pre-polymers, thermoplastic polyurethanes, custom curatives, and urethane chemicals.
  • The Industrial Engineered Products segment includes catalyst components, surface treatments, flame retardants, and an extensive bromine based product line used as agricultural and pharmaceutical intermediates. The products also include a completion fluids for oil and gas extraction and mercury control products for coal fired power stations. Under this segment, Great Lakes Solutions is a global and innovative leader in bromine, bromine intermediates, and flame retardant products and solutions. Chemtura also makes Organometallics—a special group of metals containing organic chemicals that play a significant role in a variety of industrial applications.
  • The Chemtura AgroSolutions segment focuses on specific target applications in six major product lines that include seed treatments, fungicides, miticides, insecticides, growth regulators, and herbicides.

Sells Chemtura AgroSolutions to PAH

In April, Chemtura sold its agrochemicals business, Chemtura AgroSolutions, to Platform Specialty Products Corporation (PAH)—a global specialty chemicals company—for ~$1 billion.

Chemtura AgroSolutions generated revenues of $449 million and adjusted earnings before interest, taxes, depreciation and amortization (or EBITDA) of $101 million for the year ending December 31, 2013.

Under the deal, Chemtura will retain most of the property, plant, and equipment used to manufacture products for the Chemtura AgroSolutions business. It will continue to manufacture products for PAH under several supply agreements with minimum terms of between two and four years. The company said the sale “furthers Chemtura’s transformation into a focused, pure-play industrial specialty chemical company.”

Misses on second quarter earnings and revenue

For 2Q14, Chemtura reported a net sales increase of 3% to $609 million—net earnings from continuing operations on a managed basis of $30 million, or $0.32 per diluted share. Both revenues and earnings were below expectations.

The Industrial Performance Products experienced improved volume in urethane products. The improved value was the result of an increase in demand for industrial foam, general industrial applications, and material production applications.

The segment saw a modest improvement in selling prices for the petroleum additive products year-over-year (or YoY). This was fully offset by declines in urethane selling prices.

The increase in net sales in Industrial Engineered Products was due to an increase in demand for the Emerald Innovation 3000 product. Chemtura said “customers continue to switch to this ‘greener’ alternative from the traditional HBCD flame retardant used in styrene based insulation foam applications.”

The segment also saw some improvement in brominated products and tin-based specialty products. Selling prices continued to remain weak in Industrial Engineered Products. This was a result of competitive pressures in electronics applications and organometallic polymerization catalyst components.

In Latin America, Chemtura AgroSolutions benefited from a strong soybean market and growth in cultivated acreage. It also benefited from favorable weather conditions in Europe. However, a gain in selling prices was lost because of unfavorable foreign exchange translation.

During 2Q14, Chemtura repurchased 5.5 million shares for $132 million. As of June 30, 2014, the remaining authorization under the share repurchase program was ~$139 million.

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