Elementis rejects improved USD1-billion bid by Minerals Technologies

MOSCOW (MRC) -- Elementis (London, UK) has rejected a third, improved takeover offer from Minerals Technologies (New York, New York) that values the company at GBP754 million (USD1.01 billion). The revised conditional cash offer was received on 4 December, offering 130 pence per Elementis share, and was rejected on 6 December, according to Chemweek with reference to the company's statement.

The latest proposal “falls significantly short of value that would merit engagement and access to the company’s non-public information, despite the continued opportunistic bidding tactics of Minerals Technologies,” according to Elementis. In an indication that it could be prepared to enter into talks with Minerals, Elementis says its board “would like to emphasize that it is focused on maximizing value for shareholders and would always consider engagement at a level that appropriately reflects the fair value of Elementis.” However, as the third offer “continues to significantly undervalue Elementis and its future prospects, the board unanimously rejected the proposal,” it says.

As part of a detailed response, Elementis has issued its own estimate that values the company at approximately 200 pence/share, equating to ?1.16 billion, which is almost double the original conditional offer.

“Elementis has refocused its business and built strong market positions in three high-margin specialist sectors with strong underlying growth. We have a clear strategy to capture this growth and profitability and we are confident that this will deliver significant value for our shareholders. It is the quality of these businesses that has attracted Minerals Technologies,” says Andrew Duff, Elementis chairman. “As a board, we are fully aware of our responsibility to create and capture value for our shareholders, but this ‘best offer’ falls well short of that threshold for us to engage.”

In the first, detailed public response by Elementis since the initial 107 pence/share takeover bid was received on 5 November and rejected five days later, the company says that a letter from Minerals Technologies related to the latest offer stated that “it is the best proposal that Minerals Technologies is able to make absent meaningful engagement from the Elementis Board and access to non-public information.” The letter requested a response by 5 pm GMT on 6 December.

Minerals made a second rejected bid for Elementis on 24 November, having raised its offer price to 117 pence/share, which valued the company at GBP679 million, or 9% higher than the initial offer valuation of ?621 million.

Elementis says after receipt of the first proposal the board, together with its management and advisers, conducted a “thorough review to assess the fundamental value of Elementis as well as the likely value to be created by the continued delivery of its strategy.” It also evaluated the share price levels at which it believes its shareholders would “consider a proposal to be attractive.” This valuation framework has continued to be tested and revised by the board and its advisers, including considering shareholder feedback since the approach from Minerals Technologies became public, it says.

The latest proposal fails to recognize Elementis’s differentiated, high-quality assets that merit a premium multiple, is highly opportunistic, ignores the company’s strategy to create value for its shareholders, and significantly undervalues Elementis and its future prospects, it states. The company is the owner of differentiated resources including the world’s only commercially viable high-quality rheology-grade hectorite mine, while over 80% of its earnings are currently from its premium performance additives businesses of personal care, coatings, and talc (PCCT) as a result of significant refocusing of the group, which all benefit from fundamentally attractive high margins and above global GDP growth, it says.

The latest offer is also “significantly below” the company’s closing share price at the end of 2019 of 179 pence/share, it adds.

Elementis says its adjusted operating profit for the current financial year has been impacted in the short term by COVID-19 headwinds and the industrial cycle, but is “not reflective” of business fundamentals, with its 2019 figures approximately 20% less than in 2018 for its PCCT businesses, and 70% down year on year in its chromium business. It has also implemented efficiency measures including USD10 million of forecast annual supply chain savings in 2021 underpinned by the recent announcement of the closure of its Charleston facility, while a new plant in India is on track for ramp-up in 2021 and fully qualified by 2022, it says.

In a brief business update for the fourth quarter, Elementis says trading continues to be resilient and in line with its expectations. Demand continues to be impacted by COVID-19, but sales in October and November have shown sequential progress compared with the third quarter, it says. The company remains on track to deliver a significant reduction in net debt by year-end 2020, it adds.

Its medium-term objective remains unchanged, with a target of 17% adjusted operating profit margin driven by COVID-19 recovery, growth, and efficiency. Elementis says its PCCT businesses have achieved average adjusted operating profit margin of approximately 15% over the last three years.

Using other specialty chemicals companies in the 14–17% margin range as a guide, Elementis says that applying this to average operating profit for its PCCT businesses over the last three years gives an implied value of 163–190 pence/share. Chromium, meanwhile, could be valued at an additional approximate 35 pence/share. This gives a total implied value of at least 200 pence/share for Elementis as it delivers on its medium-term objectives, it says. “Elementis has a bright future as an independent company,” it adds.

Minerals Technologies is required in accordance with stock-market regulations by 10 December to announce a firm intention to make an offer for Elementis or to confirm that it does not intend to proceed. It has not yet issued a response to the rejection of its latest offer.

As MRC informed before, earlier this month, Brenntag said it ha signed a deal with Elementis under which Brenntag will distribute the company’s products in coatings, adhesives, sealants, inks and construction materials in Canada. Exact terms of the deal were not disclosed. The product range includes rheology modifiers, defoamers, and various types of additives.

We remind that in April 2020, Brenntag sai it had acquired the operating assets of Suffolk Solutions’ (Suffolk, Virginia) caustic soda distribution business. Financial terms of the deal have not been disclosed.

We also remind that October production of sodium hydroxide (caustic soda) in Russia were 109,000 tonnes (100% of the basic substance) versus 108,000 tonnes a month earlier. Russia's overall output of caustic soda totalled 1,054,600 tonnes in the first ten months of 2020, down by 1.6% year on year.

Elementis plc is one of the UK's largest speciality chemicals business. The Company comprises three businesses: Specialty Products, Surfactants and Chromium. Both Specialty Products and Chromium hold leading market positions in their chosen sectors. Elementis employs over 1,200 people at more than 30 locations worldwide.
MRC

MOSCOW (MRC) -- Oil prices fell on Tuesday, adding to losses from the previous session that came as California tightened its pandemic lockdown through Christmas and coronavirus cases continued to surge in the United States and Europe, reported Reuters.

US West Texas Intermediate (WTI) crude futures fell 18 cents or 0.4%, to USD45.58 a barrel at 0153 GMT, while Brent crude futures fell 24 cents, or 0.5%, to USD48.55 a barrel. Both benchmark contracts lost around 1% on Monday.

Globally, a sharp rise in coronavirus cases has led to a string of renewed lockdowns, including strict measures in the US state of California as well as Germany and South Korea.

"The pandemic situation is continuing to be very disruptive in quite a few places in the US and parts of Europe. That's impacting sentiment on demand near term," said Lachlan Shaw, National Australia Bank's head of commodity research.

California on Monday required most of the state to close shop and stay at home under a new order which will last at least three weeks.

Government sources in France said the country may have to delay unwinding some lockdown restrictions next week after signs the downward trend in new cases had flattened out after shops were allowed to reopen late last month.

Following last week's rally in oil prices on the back of vaccine rollout plans and an agreement by the Organization of the Petroleum Exporting Countries and allies, together called OPEC+, to hold back supply increases, analysts said they were closely watching US lawmakers' efforts to approve a new economic stimulus package.

The stimulus will be needed to drive jobs growth, and, in turn, energy demand.

"For the moment, the market is happy to look past these issues as the vaccine rollout begins; however the economic headwinds are building in the short term," ANZ Research said in a note.

Data due from the American Petroleum Institute later on Tuesday and from the US government on Wednesday is expected to show that US crude stocks fell last week, while refined product stockpiles rose, according to estimates from five analysts polled by Reuters.

As MRC informed previously, global oil demand may have already peaked, according to BP's latest long-term energy outlook, as the COVID-19 pandemic kicks the world economy onto a weaker growth trajectory and accelerates the shift to cleaner fuels.

Earlier this year, BP said the deadly coronavirus outbreak could cut global oil demand growth by 40% in 2020, putting pressure on Opec producers and Russia to curb supplies to keep prices in check.

And in September 2019, six world's major petrochemical companies in Flanders, Belgium, North Rhine-Westphalia, Germany, and the Netherlands (Trilateral Region) announced the creation of a consortium to jointly investigate how naphtha or gas steam crackers could be operated using renewable electricity instead of fossil fuels. The Cracker of the Future consortium, which includes BASF, Borealis, BP, LyondellBasell, SABIC and Total, aims to produce base chemicals while also significantly reducing carbon emissions. The companies agreed to invest in R&D and knowledge sharing as they assess the possibility of transitioning their base chemical production to renewable electricity.

Ethylene and propylene are feedstocks for producing PE and PP.

According to MRC's ScanPlast report, Russia's estimated PE consumption totalled 1,760,950 tonnes in the first ten months of 2020, up by 3% year on year. Only high density polyethylene (HDPE) and linear low density polyethylene (LLDPE) shipments increased. At the same time, PP shipments to the Russian market reached 978,870 tonnes in January-October 2020 (calculated using the formula: production minus exports plus imports minus producers' inventories as of 1 January, 2020). Supply of exclusively of PP random copolymer increased.
MRC

MOSCOW (MRC) -- Negotiations over prices of European polyvinyl chloride (PVC) for December shipments to the CIS countries started in the middle of last week. European producers announced another increase in export PVC prices - by EUR20/tonne or more - partially due to higher feedstocks prices, according to ICIS-MRC Price report.

December contract price of ethylene was agreed up by EUR20/tonne from the previous month, which theoretically allows to talk about an increase of EUR10/tonne in the net cost of PVC. But amid a shortage and good demand from both the domestic and export markets, European producers raised their export prices for the CIS markets in December by EUR20-35/tonne.

Demand for PVC has been gradually subsiding from consumers from the CIS countries since October under the pressure of seasonal factors, but European producers do not have a surplus of material either. And even under the circumstances of reduced procurement volumes, some companies still faced the inability to fully replenish their inventories. Consumers of resin with K=70 felt this particularly acutely.

Overall, deals for December shipments of suspension polyvinyl chloride (SPVC) to the CIS markets were negotiated in the range of EUR855-925/tonne FCA, whereas the previous month's deals were discussed in the range of EUR820-905/tonne FCA.
MRC

MOSCOW (MRC) -- Sinopec’s board has approved plans to build a 1.2-million metric tons per annum ethylene plant and downstream units in the Nangang area of the port of Tianjin, China, reported Kemicalinfo with reference to an announcement posted on 4 December.

Sinopec estimates the cost of the project at 28.8 billion renminbi (USD4.4 billion).

Sinopec announced in November that it had signed a framework agreement with the Tianjin authorities to invest about 70 billion renminbi (USD10.7 billion) at Nangang in 2021-25 to build capacity for petrochemicals and other products.

Ethylene is a major product processed from crude oil. In China, over half of the chemical is used to make polyethylene, a key ingredient for plastics used in a wide range of everyday goods and home appliances.

As the Chinese government calls for reduced dependence on chemical imports amid rising geopolitical tensions, state-owned and private oil firms are racing to boost domestic capacity in the world’s top chemical consumer.

China’s total ethylene capacity is forecasted to grow over 50 million tons by 2025, an expert at oil giant, China National Petroleum Corp said.

Sinopec operates 1 million metric tons per annum ethylene plant and downstream complex in the Dagang district of Tianjin in a 50/50 joint venture (JV) with Sabic called Sinopec Sabic Tianjin Petrochemical (SSTPC). The JV announced in 2019 that it would invest 1.5 billion renminbi (USD230 million) to expand ethylene capacity by 300,000 metric tons/year for completion in 2021.

Sinopec also has a wholly-owned 240,000- metric tons per annum ethylene plant at Dagang, operated by its Sinopec Tianjin Co. subsidiary. Nangang and Dagang are both in Tianjin’s Binhai New Area development zone.

As MRC informed previously, SSTPC has brought on-stream its naphtha cracker following a turnaround. The company resumed operations at the cracker on July 12, 2020. The cracker was shut for maintenance on May 9, 2020. Located at Tianjin, China, the cracker has an ethylene production capacity of 1 million mt/year and propylene capacity of 540,000 mt/year.

Ethylene and propylene are feedstocks for producing polyethylene (PE) and polypropylene (PP).

According to MRC's ScanPlast report, Russia's estimated PE consumption totalled 1,760,950 tonnes in the first ten months of 2020, up by 3% year on year. Only high density polyethylene (HDPE) and linear low density polyethylene (LLDPE) shipments increased. At the same time, PP shipments to the Russian market reached 978,870 tonnes in January-October 2020 (calculated using the formula: production minus exports plus imports minus producers' inventories as of 1 January, 2020). Supply of exclusively of PP random copolymer increased.

China Petrochemical Corporation (Sinopec Group) is a super-large petroleum and petrochemical enterprise group established in July 1998 on the basis of the former China Petrochemical Corporation. Sinopec Group"s key business activities include the exploration and production of oil and natural gas, petrochemicals and other chemical products, oil refining.
MRC

MOSCOW (MRC) -- On Tuesday, after a long break at the State Commodity and Raw Materials Stock Exchange of Turkmenistan, the export trades for Turkmenbashi refinery's polypropylene (PP) were resumed. 3,500 tonnes of PP out of the put out for auction 5,000 tonnes of material were sold during one trading day, according to ICIS-MRC Price report.

The trades participants said the last export trades for Turkmenbashi refinery's PP took place at the State Commodity and Raw Materials Stock Exchange back in August, and then only 3,000 tonnes of raffia grade PP were put out for action. On Tuesday, 8 December, 5,000 tonnes of PP were put up for auction in the export trades at a starting price of USD920/tonne FCA.

Only 3,500 tonnes of PP were sold out of the put out for auction 5,000 tonnes in the first trading day, deals were done at prices significantly higher than the starting price - USD1,046/tonne FOB/FCA, with shipment within six months.
MRC