PhillyDeals: FMC to split business

Will two FMC corporations be better for Philadelphia than one?

Shares of the multinational Center City-based chemical-maker rose nearly 7 percent to close at a record $83.10 Monday after FMC said it plans to divide into separate mining and manufacturing companies.

The split will mean two corporate headquarters at the 47-story FMC Tower, which Brandywine Realty Trust is building for the company at 30th and Walnut Streets.

And it means "two IT organizations, two finance organizations, two communications organizations, two procurement organizations," Pierre Brondeau, FMC's current chairman and CEO, told investors in a conference call.

"We are very excited," said Jerry Sweeney, Brandywine's boss, on the prospect of getting a second head office as a tenant.

Mayor Nutter, told of the move, said he hoped two FMCs means more hiring.

"We are going to hire lots of people, [the mayor's] right," Brondeau told me.

Here is how FMC plans to split:

The New FMC, to be headed by Brondeau, will include the company's "technology-based" and "growth-oriented" plants that make farm pesticides, food additives like omega-3 fish oil, and medical materials. Sales for the group should total $3.35 billion this year, FMC says.

FMC Minerals, which will have its own chief executive, will include FMC's lithium unit, which supplies battery materials, plus the company's soda ash business, which supplies glass, detergent, and chemical-makers. Sales will total around $1 billion a year.

Brondeau says the minerals businesses are based on high-profit, low-cost natural-resource extraction techniques that FMC has developed at sites in North and South America. Sales of these mining products rise and fall with the global business cycle. FMC says it can make soda ash in the Western Hemisphere and ship it to Asia for less than it costs Chinese producers to make it.

The tech businesses enjoy "predictable" growth and require steady annual investment, said Brondeau. The mining businesses require significant long-term capital spending and uncertain time horizons. No one knows how long it will take battery-powered electric cars to catch on, for example.

"Investors either buy growth with productivity [the New FMC], or they buy high returns with volatility [FMC Minerals]. They don't buy the two under the same roof. That's why we had to separate them," Brondeau told me.

Won't one or both of the separated FMC units be swallowed up by larger acquirers?

Buyout funds and other buyers could find FMC Minerals' cash flow attractive, Brondeau agreed. But a takeover would be very expensive, he added. The split is structured as a tax-free spin-off. So a buyer would likely have to pay taxes, which would have the effect of boosting the price far above the spin-off's initial market value.

Quizzing Brondeau on details of the deal during the conference call, analyst John McNulty of Credit Suisse called the split "a pretty solid move."

Brondeau said he and his lieutenants have worked out the divorce plan since last autumn, without pressure from activist investors.

Hedge funds and other activists have regularly pushed to break up DuPont, Dow Chemical, and other big manufacturers in hope of boosting the value of faster-growing subsidiaries.

Tyco International is among the industrial conglomerates that have enriched investors by successfully spinning out business units like Berwyn-based TE Connectivity over the last decade.

Some spun-off businesses can also end up shrinking, as they are taken up and sold by a series of owners.

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@PhillyJoeD

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