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FMC Corp. Takes Flight on Split-up Plan

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Shares of chemical company FMC Corporation ( FMC) shot up to reach a new 52-week high after it announced its plans to split itself into two independent public companies. 


The move will allow the Pennsylvania-based company to separate its growth businesses - Agricultural Solutions and Health and Nutrition – from the Minerals division, which is a more cyclical business. The Minerals unit remains challenged with continued double-digit decline in profits. A somewhat weak soda ash export pricing environment and higher costs are hurting the segment’s profitability.


The breakup will result in the creation of two distinct companies – “New FMC”, which will consist of the company’s Agricultural Solutions and Health and Nutrition segments, and "FMC Minerals", which will comprise its Minerals division that includes alkali chemicals – the largest global producer of natural soda ash – and the lithium business that makes products used in electric car batteries and pharmaceuticals.


The separation, which is subject to final Board clearance and other customary conditions, will be carried out in the form of a tax-free distribution of shares to the company’s existing shareholders. FMC Corp. expects to close the separation in early 2015, following which, each company is expected to be listed on the NYSE.


FMC Corp.’s shares rose as much as around 8% to clock a new 52-week high of $83.94 yesterday. The stock pulled back to close the day at $83.10, gaining around 6.7%. The company’s shares are up roughly 38% over a year. 


New FMC will be a technology-based and customer-driven company. Combined revenues and earnings for the Agricultural Solutions and Health and Nutrition units are expected to be roughly $3.35 billion, up 16% year over year, and $815 million, up 15% year over year, respectively, based on the midpoint of the company's guidance released in Feb 2014. New FMC is expected to maintain a strong balance sheet and financial policies consistent with FMC Corp.’s current credit rating.


For FMC Minerals, revenues and earnings (based on the midpoint of company’s guidance) are expected to be around $1 billion and $153 million, respectively, reflecting a 7% and 19% year over year rise, respectively. The entity is expected to generate strong cash flow and have the financial flexibility to execute select investment opportunities. 


FMC Corp.’s incumbent President, CEO and Chairman Pierre Brondeau will lead New FMC. A new CEO will be appointed for FMC Minerals in the coming months. 


Bank of America Merrill Lynch, a division of Bank of America ( BAC) and Goldman Sachs ( GS) are acting as financial advisors to FMC Corp. on the transaction while Wachtell, Lipton, Rosen & Katz is serving as legal advisor.


The separation represents a part of FMC Corp.’s “Vision 2015” strategy, a road map for future. The company feels that creation of two publicly-listed entities will allow their respective management to effectively execute their own strategy and enable the adoption of appropriate capital structure.  


As part of Vision 2015, FMC Corp. simplified its operational structure in April 2013 by restructuring its reporting segments to four units – Agricultural Solutions, Health and Nutrition, Minerals and Peroxygens. The company recently completed the sale of its Peroxygens business to affiliates of JPMorgan’s ( JPM) private investment arm – One Equity Partners – for $200 million.


FMC Corp., a Zacks Rank #3 (Hold) stock, expects above-market rate growth to continue for its agricultural business in 2014, driven by favorable market conditions, continued market share gains and new product introductions.


Moreover, the Omega-3 product line is expected to drive results in the nutrition and health business. FMC Corp. is also optimistic about its lithium business as demand is expected to remain strong on the back of greater adoption in electric vehicles and other applications. 

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