FMC Corp. (FMC) plans to create two independent public companies, separating its agriculture and health-care units from other businesses including lithium and alkali chemicals.
The transaction will be in the form of a tax-free distribution of shares to existing shareholders, Philadelphia-based FMC said today in a statement. The split is expected to be complete in early 2015, after which both companies will trade on the New York Stock Exchange. Shares of FMC rose the most in more than four years.
Chairman and Chief Executive Officer Pierre Brondeau said today on a conference call he’s been considering for the past year how to expand FMC’s minerals business, where earnings are more cyclical, without damaging the more predictable performance of its other units. FMC’s board approved the split March 7 after considering other options including the sale of assets, he said.
“There was a tension between the two businesses,” Brondeau, who will become CEO of the new agriculture and health-care company, said on the call. “We have under-managed the minerals business.”
FMC rose 6.7 percent to $83.10 at the close in New York, the biggest gain since July 2009.
“The announcement will be viewed favorably,” Michael J. Sison, a New York-based analyst at KeyBanc Capital Markets Inc., said in a note. “The new FMC entity will become a pure ag/specialty chemical business, as it sheds the commodity volatility of the minerals business.”
Most of the recurring cycles in minerals is due to the soda-ash business, particularly when China exports excess production at low prices, Brondeau said today in a phone interview. Lithium is a relatively stable market, he said.
The announcement follows moves by larger competitors Dow Chemical Co. and DuPont Co. to boost valuations by separating their most cyclical units. DuPont is spinning off its performance-chemicals unit, while Dow, under pressure from Dan Loeb’s Third Point LLC to split itself in two, plans to sell only its chlorine-related assets.
No investors pushed for a breakup of FMC, Brondeau said in the interview.
“Operationally it’s better to have different management teams,” Brondeau said. “You can’t think of two more different businesses than mining and health and agriculture. They are almost opposed on every aspect of running a business.”
The separation will create what the company is calling New FMC, comprising the agricultural solutions segment, a maker of fungicides and insecticides, and the health and nutrition business, which produces food ingredients.
“The split will sharpen the growth profile of the core FMC platform,” Laurence Alexander, a New York-based analyst at Jefferies Group LLC who recommends buying the shares, said today in a note.
New FMC’s 2013 sales and earnings will be about $3.35 billion and $815 million respectively, FMC said. FMC Chief Financial Officer Paul Graves will be the new entity’s CFO.
New FMC may seek acquisitions of $100 million to $500 million to expand the health unit with a business that is “highly technical and formulation-intensive,” Brondeau said. New FMC may spend as much as $200 million to add new products or technologies to the agriculture unit, he said in the interview.
The rest of the company will become FMC Minerals, comprising the current minerals segment, with revenue and profit this year of about $1 billion and $153 million respectively, FMC said. The new minerals company includes the world’s largest producer of natural soda ash, used in glass making, and production of lithium from brine. Lithium, the lightest metal, is used in batteries and pharmaceuticals.
New FMC has increased profit 17 percent a year since 2011 with 24 percent margins on earnings before interest and taxes, Alexander said. FMC Minerals has grown profit 3 percent a year with Ebit margins as low as 13 percent expected to reach 20 percent within three years, he said.
The CEO of FMC Minerals probably will come from outside the company, and the search started today, Brondeau said in the interview. Andrew Sandifer, FMC’s vice president of strategic development, will be its CFO.
The top priority of FMC Minerals will be to boost lithium production capacity, either through acquisitions, partnerships, or investing in expanded mining operations, Brondeau said. The company may reach its lithium production capacity by year end, so a decision needs to be made soon, he said.
FMC is being advised by Bank of America Corp., Goldman Sachs Group Inc. and Wachtell, Lipton, Rosen & Katz.
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