Shares of FMC Corp. jumped 5%, topping $81, a record high for the Philadelphia-based specialty-chemical maker, in morning trading after CEO Pierre Brondeau told investors he plans to split the company into two publicly-traded firms, both of which plan to open headquarters in the 47-story tower Brandywine Realty Trust agreed to build for FMC Corp. and other tenants at 30th and Walnut in University City.
If the companies stay independent as planned, the split could be a net gain for Philadelphia: "You're going to need two IT organizations, two finance organizations, two communication organizations, two procurement organizations," Brondeau told investors in a conference call. He acknowledged this will mean "a slight operational cost increase," but predicted it will be worth it in terms of higher share values.
The two successor companies:
-- "New FMC," with $3.35 billion in sales (+16% vs 2012) and $815 million in profits last year, will supply farm pesticides, food additives like omega-3 fish oil, and medical materials.
Brondeau says these businesses are all "technology based," "growth-orientedm" "high return" and "non-cyclical."
-- "FMC Minerals," with $1 billion in sales (+7% vs 2012) and $153 million in profits last year, will include FMC's lithium-by-saltwater-evaporation unit, which supplies battery-makers, and its soda ash business, which supplies glass, detergent and chemical makers.
Brondeau says these businesses are based on "low-cost manufacturing" using "unique extraction and processing technologies," that are "driven by global economy growth." Even with shipping costs, FMC, one of four American soda ash producers, can send soda ash to Asia for less than it costs Chinese companies to produce it, he added. Brondeau called FMC the "lowest cost producer in the world" for that commodity.
"Way to shake things up on a Monday morning," Wells Fargo analyst Frank Mitsch told Brondeau in a conference call detailing the plan. Most of the analysts who spoke praised the deal, or at least FMC's transparency in detailing its plans. Brondeau told Mitsch the deal would likely slow down FMC acquisitions -- at least large ones -- until 2015. Brondeau told me FMC bosses had come up with the plan for the split on their own, over the past six months, and had not been pressured by activist investors, who he called disruptive.
So why the split? Given the high capital needs of the ag-food-medical business, "we have undermanaged the Minerals business," and it will be free to grow more rapidly once it's independent, Brondeau told investors.
Though the mining units as a group are smaller, the "underlying market demand for lithium remains strong" long-term, given increased use of electric cars -- when that finally takes off -- FMC notes in its statement. The split will enable each company to "pursue its own strategy" and financing, Brondeau said -- or to attract potential buyers who would reward shareholders. By splitting into two companies with different financing, tax and dividend strategies, FMC "will deliver value to our customers, oru employees, oru communities and our shareholders," Brondeau said.
Brondeau will run "new FMC", with Paul Graves as CFO. Mark Douglas will still head ag chemicals, Mike Smith will continue at Health and Nutrition.
Asked if new FMC is likely to buy other large pesticides businesses, Brondeau said the only one currently for sale is the group belonging to Philadelphia-based Chemtura, which has been talking to buyers, but "doesn't fit our strategy" and hasn't been talking to FMC.
Andrew Sandifer, FMC's vp-strategic development, will join Ed Flynn as senior executives at FMC Minerals; a CEO will be announced later. Tom Schneberger stays atop Alkali Chemicals, Eric Norris at Lithium.
Will the separated companies be swallowed up in mergers? "It woudl require an acquisition of very, very large premium to make it positive" for a buyer, "versus the [tax-free] structure we have decided," FMC CFO Paul Graves said, in response to a question by analyst John McNulty of Credit Suisse. McNulty called the split "a pretty solid move."