Recently, Rockwood Holdings, Inc. (NYSE:ROC) reached an agreement to sell its German ceramics business CeramTec to a buyout firm, Cinven, for around €1.49 ($2) billion. Not only will this move let Rockwood concentrate on its core metal business, but it is also a good way to return more cash to the company’s shareholders.
Since the middle of November 2012, Rockwood Holdings, Inc. (NYSE:ROC) has experienced quite a sweet rise from around $42.50 per share to $66.20 per share. Is Rockwood a good buy after the CeramTec divestment? Let’s take a closer look.
Rockwood Holdings, Inc. (NYSE:ROC) is the manufacturer of specialty chemicals and advanced materials including lithium and surface treatment chemicals, advanced ceramics and iron-oxide pigments. It operates around 80 facilities in more than 20 countries, providing its products to as many as 60,000 customers. The company has quite a diverse customer base, with no single customer representing more than 2% of its total 2012 sales.
The majority of its revenue, $731.5 million, or 21% of the total 2012 revenue, was generated from the Performance Additives segment, while the Surface Treatment segment contributed $723.2 million in 2012 sales.
The Advanced Ceramics segment’s revenue came in at $546.7 million, accounting for 16% of the total revenue. Interestingly, the Advanced Ceramics segment was the largest operating income contributor, with $104.8 million in operating profit in 2012. The Advanced Ceramics operates under CeramTec brand name, which was sold to Cinven.
CeramTec’s divestment is good for the company
Rockwood Holdings, Inc. (NYSE:ROC) had quite a leveraged balance sheet. As of March, it had nearly $1.5 billion in equity, $491 million in cash and nearly $2.18 billion in long-term debt. Thus, the divestment of CeramTec could allow Rockwood to be more financially flexible and reduce the company’s leverage level.
According to Moody’s, a meaningful reduction in debt was needed for the company’s credit rating at Ba1. Rockwood Holdings, Inc. (NYSE:ROC)’s Chairman and CEO Seifi Ghasemi felt bullish about this sale agreement. He said, “Successful execution of this transaction at an attractive multiple will bring Rockwood one significant step closer to our strategic objective and commitment to become a more focused specialty chemical company with a growth portfolio that best maximizes value and returns for our shareholders.”
Moreover, Rockwood’s titanium dioxide pigments business also got attention from Huntsman Corporation (NYSE:HUN), the global fourth-biggest titanium dioxide pigment. In April, Huntsman CEO mentioned that the company considered either selling or adding to its pigment unit “to be part of any consolidations in this industry”. Huntsman’s acquisition intention matches with Rockwood’s plan to sell or spinoff titanium dioxide to its shareholders by the end of this year.
Are Huntsman and Tronox Ltd (NYSE:TROX) better buys?
At $66.20 per share, Rockwood is worth $5.14 billion on the market. The market values the company at 9.6 times its trailing EBITDA, or earnings before interest, taxes, depreciation and amortization.
Huntsman Corporation (NYSE:HUN) is worth much lower on the market. Huntsman is trading at $16.80 per share, with the total market cap of more than $4.5 billion. The market values Huntsman at 6.7 times its trailing EBITDA.
Huntsman is one of the biggest methanol buys in the world, and it also intends to take advantage of cheap natural gas by investing in a methanol plant along the Gulf Coast in the U.S. In the fiscal year 2014, the company expected to generate around $200 million in normalized EBITDA.