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Corporate: Huntsman Corp. (HUN)
Trade: Huntsman Corp. is an international producer of differentiated natural chemical merchandise. The corporate operates in 4 segments: Polyurethanes, Efficiency Merchandise, Complex Fabrics, and Textile Results. The Efficiency Merchandise section manufactures amines and maleic anhydrides, together with ethylene oxide, propylene oxide, glycols, ethylene dichloride, caustic soda, ammonia, hydrogen, methylamines, and acrylonitrile. The Complex Fabrics section gives epoxy, acrylic, polyurethane, and acrylonitrile-butadiene-based polymer formulations; prime efficiency thermoset resins, curing brokers and toughening brokers, and carbon nanotubes components; and base liquid and cast resins. The Textile Results section supplies textile chemical compounds and dyes. The corporate’s merchandise are utilized in a spread of packages, together with adhesives, aerospace, car, development merchandise, sturdy and non-durable shopper merchandise, electronics, insulation, scientific, packaging, coatings and development, energy era, refining, artificial fiber, textile chemical compounds, and dye industries.
Inventory Marketplace Price: $6.8B ($30.68 in step with percentage)
Activist: Starboard Price
Proportion Possession: 8.38%
Moderate Price: $26.35
Activist Statement: Starboard is an excessively a hit activist investor and has in depth operational activism revel in serving to forums and control groups run corporations extra successfully and bettering margins. That is their 103rd 13D submitting. In the ones 103 filings, they have got averaged a go back of 33.94% as opposed to 13.26% for the S&P 500. Their reasonable 13D dangle time is eighteen months.
What is Going down?
Starboard obtained an 8.38% place for funding functions.
In the back of the Scenes:
Huntsman Corp. was once based via Jon M. Huntsman and is now run via his son, Peter R. Huntsman, who’s chairman of the board, president and CEO. This corporate has been most commonly stagnant since its IPO in 2005. Right through this time, the corporate has purchased and offered quite a few other belongings, however its inventory value, EBITDA and income expansion have no longer moved considerably, and its margins have no longer stepped forward. The entire whilst, its best-in-class friends, Eastman Chemical Corporate and Celanese Company have completed a lot upper margins and loose money float era than the corporate, inflicting them to seriously outperform Huntsman.
On a trailing three-year foundation (accounting for the cyclicality of the industry), Huntsman’s margins are roughly 14% whilst Eastman and Celanese are within the low to mid-20’s, leading to a margin hole of more or less 800 foundation issues. Whilst a part of the margin hole may well be defined via relative mixes of decrease margin commodity and better margin distinctiveness chemical compounds, lots of the hole is on account of value problems and loss of potency. Lately, Huntsman has upgraded its portfolio from being extra commodity targeted to distinctiveness targeted, which will have to be main to raised margins. Alternatively, not like Eastman, Huntsman has no longer been in a position to chop a large number of the associated fee out. Those operational problems have resulted in an underperformance available in the market and decrease EV/EBITDA multiples – on a trailing three-year foundation, Huntsman trades at roughly 6.5x EBITDA with Eastman and Celanese buying and selling between 8 occasions and 9 occasions EBITDA.
There are two primary alternatives right here. The primary alternative is operational – shut the margin hole which will have to result in a tightening of the a couple of hole. That is one thing that Starboard has in depth revel in doing from a board stage. A part of this will also be completed via promoting different commodity/undifferentiated belongings. The corporate offered one among its maximum commodity-centric companies in 2019 for 8 occasions EBITDA. Promoting different companies at identical multiples will lead to speedy price relative to the 6.5x a couple of the corporate has been buying and selling at. Additionally, this may increasingly additionally building up the commodity/distinctiveness combine extra towards the upper margin distinctiveness aspect, which will have to re-rate the a couple of of the remainder distinctiveness belongings. Moreover, margins will also be a great deal stepped forward via including stockholder administrators who will dangle control responsible and institute a extra disciplined tradition.
The opposite alternative is to promote the corporate to both a monetary or strategic purchaser. There were a large number of transactions on this house up to now few years. Simply previous this week, Kraton entered into an settlement to be offered to DL Chemical for 8.5x EBITDA. In both case, Starboard can be very useful from a board stage, and that is the kind of corporate that might a great deal use a shareholder consultant at the board.
Whilst the corporate was once based via the Huntsman circle of relatives, that was once over 50 years in the past. Since then, their holdings have dwindled to unmarried digits. In an arms-length CEO seek via an unbiased board, it will be extremely implausible that the CEO selected was once coincidentally the son of the founder. Additionally, a shareholder-friendly board would by no means additionally appoint that CEO as chairman and president. This isn’t announcing that there will have to be a CEO alternate right here, nevertheless it without a doubt speaks to the tradition of the corporate and the oversight of the board. Appointing a Starboard consultant to the board would a great deal get advantages shareholders and will have to occur amicably. If no longer, Starboard can get started nominating its personal slate on Dec. 29, however we extremely doubt it’ll come to that.
Ken Squire is the founder and president of 13D Track, an institutional analysis provider on shareholder activism, and the founder and portfolio supervisor of the 13D Activist Fund, a mutual fund that invests in a portfolio of activist 13D investments.