global chemicals industry—opportunities and headwinds group documents... · source: bloomberg lp...
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Global Chemicals Industry—Opportunities and Headwinds
James P. Dunn, Jr., CFA Managing Director and Senior Analyst
February 18, 2016
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Economic Growth Remains Relatively Sluggish
Overall Outlook
Monetary Policy� The Fed’s initial interest rate hike came late in the cycle amid
circumstances more consistent with cutting interest rates. Policymakers will move extra cautiously.
Inflation� Slowing global economic growth and the stronger dollar are
pulling commodity prices lower and will likely restrain headline inflation for quite some time.
Fiscal Policy
� Last year’s federal budget deal will provide a slight boost to economic growth in 2016. State and local governments are also boosting spending modestly.
Global
Economy
� Slower growth in China is weighing on other economies, pushing the value of the dollar higher and presenting a threat to U.S. exports and corporate earnings.
� We continue to look for the U.S. economy to grow in the 1.7%-2.0% range in 2016. Domestic demand remains strong, which will help offset sluggish global growth.
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1980 1985 1990 1995 2000 2005 2010 2015
Real Global GDP GrowthYear-over-Year Percent Change, PPP Weights
Period Average
WFForecast
Global GDP Growth
We forecast that global GDP growth will remain below its
long-run average in 2016
Source: International Monetary Fund and Wells Fargo Securities, LLC
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U.S. Real GDP Bars = CAGR Line = Yr/Yr Percent Change
GDP - CAGR: Q3 @ 1.5%
GDP - Yr/Yr Percent Change: Q3 @ 2.0%
Forecast
Real GDP Forecast
Our forecast looks for real GDP growth to remain generally solid in coming quarters, albeit likely
lower than 2015 levels
Source: U.S. Department of Commerce and Wells Fargo Securities, LLC
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Global Economic IndicatorsYear-over-Year Percent Change
Global Industrial Production: Q3 @ 2.0%
U.S. GDP: Q3 @ 2.1%
Global Industrial Production
It would take a sharp downturn in the rest of the world to have a
meaningful effect on U.S. economic growth
Source: IHS Global Insight and Wells Fargo Securities, LLC
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The Strong U.S. Dollar is a Problem for the U.S. Economy
Easy monetary policy around the globe has triggered a surge in the strength of the U.S. dollar, repressing already low inflation,
restraining economic growth and having a substantial deflationary effect on the U.S. economy
While the Fed does not traditionally focus on the dollar in its policy statements, the recent surge was clearly on the Board’s
mind—they mentioned the dollar 25 times
A reported $100B was sliced off of dollar-denominated revenues at some of the U.S.’s largest multinationals in 2015
U.S. Dollar vs. S&P 500 Forward EPS
Source: Bloomberg, Thomson ONE, and Gluskin Sheff
References to the U.S. Dollar in the Fed’s Beige Book
U.S. Dollar Index
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Clearly the Strong Dollar is on the Fed’s Mind…
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Jan-14 Mar-14 May-14 Jul-14 Sep-14 Nov-14 Jan-15 Mar-15 May-15 Jul-15 Sep-15 Nov-15 Jan-16
The USD recently surged 6% to 8 month highs following a 26% surge in 2014…
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Oil Prices: No Sign of Bottoming
Oil prices began collapsing during the second half of 2014
and have fallen further than industry analysts had expected.
The RIG count has followed oil prices lower and neither show a
sign of bottoming.
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Baker-Hughes Rig Count vs. Oil PricesOil Rotary Rigs; USD per Barrel
Oil Rig Count: Jan-22 @ 510 (Left Axis)
WTI: Jan-15 @ $30.9 (Right Axis)
Source: Bloomberg LP and Wells Fargo Securities, LLC
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ISM Manufacturing & Non-Manufacturing Composite Index
ISM Manufacturing Index SA: Dec @ 48.2
ISM Non-Manufacturing Index SA: Dec @ 55.3
Manufacturing Weakness Likely to Persist in 2016
Weakness in the economy is largely concentrated in the
manufacturing sector
Source: Institute for Supply Management and Wells Fargo Securities, LLC
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2%
4%
6%
8%
10%
12%
14%
16%
18%
2%
4%
6%
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10%
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14%
16%
18%
94 96 98 00 02 04 06 08 10 12 14 16
Unemployment RatesSeasonally Adjusted
Unemployment Rate: Dec @ 5.0%
U-6 Unemployment Rate: Dec @ 9.9%
U.S. Unemployment Rate
There is less slack in the labor market today
Source: U.S. Department of Labor and Wells Fargo Securities, LLC
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8%
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6%
8%
2000 2002 2004 2006 2008 2010 2012 2014 2016
Real Personal Consumption ExpendituresBars = CAGR Line = Yr/Yr Percent Change
PCE - CAGR: Q3 @ 3.0%
PCE - Yr/Yr Percent Change: Q3 @ 3.1%
Forecast
Real PCE Forecast
Growth in consumer spending has ramped up in recent
quarters
Source: U.S. Department of Commerce and Wells Fargo Securities, LLC
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90 92 94 96 98 00 02 04 06 08 10 12 14 16
10-Yr Treasury and Federal Funds Target RatePercent
10-Year Treasury Yield: Dec @ 2.24%
Fed Funds Target: Dec @ 0.50%
U.S. Interest Rates
Short-term interest rates are headed higher, albeit at a slow
pace
Source: IHS Global Insight and Wells Fargo Securities, LLC
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2002 2004 2006 2008 2010 2012 2014 2016
Eurozone Real GDPBars = Compound Annual Rate Line = Yr/Yr % Change
Compound Annual Growth: Q3 @ 1.2%
Year-over-Year Percent Change: Q3 @ 1.6%
Forecast
Eurozone GDP
The recovery in the Eurozone should continue, albeit at a
modest pace
Source: IHS Global Insight and Wells Fargo Securities, LLC
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Chinese Real GDP ForecastYear-over-Year Percent Change
Year-over-Year Percent Change: Q3 @ 6.9%
Forecast
China GDP
The Chinese economy likely will continue to slow, but we do not
believe it will completely fall apart either
Source: Bloomberg LP and Wells Fargo Securities, LLC
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How Exposed Is the U.S. Economy to China?
U.S. exports to China comprise about 7 percent of all U.S. exports and less than one percent of GDP. American banks have relatively little direct exposure to China, with about $100 billion of
loans or less than one percent of loans. Indirect exposure to China is likely greater, however.
Source: Bank for International Settlements, IHS Global Insights and Wells Fargo Securities, LLC
Lending to ChinaTrade Relationship
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U.S. Trade With ChinaBillions of Dollars
U.S. Exports to China: 2014 @ $124.0 Billion
U.S. Imports from China: 2014 @ $466.7 Billion
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U.S. Bank Exposure to ChinaBillions of Dollars
Total Exposure: Q2 @ $110.3 Billion
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Will Chinese Stock Market Selloff Ruin Transition to Domestic Demand?
Since last summer the Shanghai and Shenzhen composites have introduced greater volatility in global financial markets. Unlike many developed economies, however, equity holdings of the
typical household in China comprises less than 10 percent of total financial assets.
Source: Bloomberg LP, CEIC and Wells Fargo Securities, LLC
Value AddedStock Prices
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Jan-13 Jul-13 Jan-14 Jul-14 Jan-15 Jul-15 Jan-16
Chinese Stock MarketIndex, January 4, 2013 = 100
Shanghai Composite: January 12 @ 132.8
Shenzen Composite: January 12 @ 211.4
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Financial Assets of Chinese HouseholdsTrillions of Yuan
Other: 2013 @ 6.6T Yuan
Currency: 2013 @ 4.9T Yuan
Bonds: 2013 @ 0.9T Yuan
Stocks: 2013 @ 6.4T Yuan
Insurance: 2013 @ 9.0T Yuan
Bank Deposits: 2013 @ 47.8T Yuan
15
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Global Chemical Industry – Exposure by End Market
Source: Deloitte Global Manufacturing Industry Group Study on the Global Chemicals Industry
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Global Construction Outlook – Mixed Depending on Geography
The outlook for construction activity varies considerably across the globe. Over the past twelve months, commodity-based economies have seen tremendous pressure.
17
Source: IHS Global Insight and Wells Fargo Securities, LLC
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Housing StartsMillions of Units
Multifamily Starts
Multifamily Forecast
Single-family Starts
Single-family Forecast
Forecast
Housing Outlook – Slow, Steady Growth Likely to Continue
We continue to look for the gradual recovery in
homebuilding to continue.
Apartment demand remains exceptionally strong but supply
is catching up with demand.
Single-family housing starts are beginning to ramp back up.
Gains will be more modest than in past building cycles.
Source: U.S. Department of Commerce and Wells Fargo Securities, LLC
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Electronics Outlook – The Rate of Connectivity is Growing Faster than the Population
By 2020, there will be 5.5 billion global mobile users, up
from 4.8 billion in 2015
By 2020, there will be 11.6 billion mobile-ready devices
and connections, nearly 4 billion more than in 2015
By 2020, the average mobile connection speed will increase
3.2-fold, from 2.0 Mbps in 2015 to 6.5 Mbps by 2020
By 2020, global mobile IP traffic will reach an annual run rate of 367 exabytes, up
from 44 exabytes in 2015
Source: Cisco VNI Mobile Forecast, February 2016
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Power Generation / Energy Outlook
Growth in alternative energy has been driving demand. Will it continue?
20
Source: The C Three Group NA Power Transmission Project database
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Paper and Packaging Markets – Outlook Mixed
Source: Domtar Presentation (November 2015) and Wells Fargo Securities, LLC
Communication Paper markets are in systemic decline and are
expected witness negative 3%-5% annual demand erosion for the
foreseeable future.
Personal care markets are benefitting from a growing middle class globally and are expected to
remain upward sloped.
Food packaging markets should continue to track global
population growth rates and are benefitting from consumers desire
for convenience.
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Advertising Growth Remains Upward Sloped…Except for Print Media
22
Source: Magna Global (US Advertising Forecast Report – June 2015)
Print Media Advertising is
expected to decline to less than 6% of the total Ad pie in
2019 from nearly 34% in 2008
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E-Commerce Driving Containerboard Demand Growth
Source: Forrester and Wells Fargo Securities, LLC
$202
$226
$252
$278
$304
$327
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2011 2012 2013 2014 2015 2016E
($ i
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s)
E-Commerce Sales are expected to increase to $327 billion in 2016, which represents a 10%
CAGR since 2011. Elevated sales should continue to benefit
containerboard manufacturers.
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Agriculture – Commodity Prices have been under Pressure
Source: Chicago Board of Trade and Bloomberg, L.P.
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Jan-14 Apr-14 Jul-14 Oct-14 Jan-15 Apr-15 Jul-15 Oct-15 Jan-16
Corn
Wheat
Soybeans
Crop prices have been under pressure for the past several
years as crop yields and planted acres both remain elevated. This condition is expected to persist
in 2016 as well.
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Healthcare / Nutrition – Increasing Population and Life Expectancy
Source: U.S. Census Bureau, Bloomberg, L.P. and Wells Fargo Securities, LLC
Healthcare and nutrition end markets are being driven by a
combination of increasing global population and longer life
expectancies.
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Life Expectancy - Euro
Life Expectancy - USA
World Population
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Motor Vehicle Sales Were Strong in 2015
Motor vehicle sales surged in 2015, possibly reflecting the increased use of incentives.
Credit terms have also been very aggressive, particularly for
subprime borrowers.
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2005 2007 2009 2011 2013 2015
Total U.S. Light Motor Vehicle SalesIn Millions, Seasonally Adjusted Annual Rate
Light Vehicle Sales: Dec @ 17.2M
Source: U.S. Department of Commerce and Wells Fargo Securities, LLC
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Automotive Outlook – Modest Growth Expected to Continue
While global growth in 2015 slowed to an estimated 1.4%, the 87.5 million light vehicle sales represented the seventh consecutive year of growth.
Over the next five years, growth in the auto sector
should continue to be driven primarily by China. IHS
estimates that 2016-2020 auto sales of 474 million will
be up nearly 62 million compared to the prior five-
year period, with China expected to account for
approximately 50% of that increase.
Source: IHS Automotive
83.3 86.387.5
89.8 92.2 94.8 97.7 100.1102.5
0.0
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Veh
icle
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(in
Mil
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ns)
ROW China Europe North America
Source: IHS Automotive and Wells Fargo Securities, LLC
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Where Are We in the Cycle?
Capital Availability
High
New Projects Announced
Peak Prices
Price Pressure / Investors Sell
Valuations Contract
Capital Availability
Low
Profits Contract Sharply
Valuations Improve
Orders Expanding
Expansion of Earnings
Limited Supply Provides Price
Support Write downs on Investments, Production
Cutbacks, Project Cancellations
Capital Expensive, Only Available to High Quality Names
Illustrative Cycle
Metrics and Themes Illustrative Cycle
Source: Census Bureau, University of Michigan, U.S. Energy Information Administration, Federal Reserve, FactSet
� Consumer Spending
� U.S. retail sales fell 0.1% in December and were up 2.1% in 2015
� New orders for durable goods stayed flat from the previous month, after a 3.0% increase from September to October
� Consumer sentiment index up to 92.6 in December, from 91.3 in November (January expectation of 93.3, which would be the highest reading since June)
� 2015E / 2016E Outlook: Personal consumption +3.2% / 2.8%
� Industrial Production
� Industrial production fell 0.4% in December, after decreasing 0.9% in November, primarily as a result of cutbacks for utilities and mining
� Industrial production fell at an annual rate of 3.4% in the fourth quarter
� 2015E / 2016E Outlook: Industrial production +1.6%/ 2.5%� Automotive
� Light vehicle sales in 2015 reached 17.5 million, clearing a peak last reached 15 years ago, due to cheap gasoline, employment rates and low interest rates
� 2016E / 2017E Outlook: N.A. Light Vehicle Production +1.8% /2.3%� Commercial Construction
� Total value of construction put in place rose 10.5% YoY and declined 0.4% MoM in November; (private: 12.1% and -0.2%, public: 6.0% and -1.0%, respectively)
� Fed Senior Loan Survey suggests non-residential investment to continue
� Key indicators point to meaningful growth
� 2016E / 2017E Outlook: Comm. construction spending +9.7% / 9.5%� Oil & Gas
� Concerns over pace of economic growth in emerging markets have led to a recent oil price decline
� Forward curve remains relatively flat
� 2015E / 2016E Outlook: WTI oil price down $49 per bbl/ $39 per bbl
� China
� Slowdown in the Chinese economy fueling demand concerns globally
� Government actions aimed at mitigating pullback: currency devaluation, interest rate cuts and stock purchases
28
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Five Critical Key Takeaways
Economic Outlook
Weaker Global Growth� The weaker global economy continues to pull at industries closely
tied to it, creating a disinflationary undertow that is squeezing corporate profits.
Interest Rates� The Federal Reserve has begun to ‘normalize’ interest rates amid
a challenging backdrop. Policymakers will likely move very gradually and cautiously.
The Housing Recovery
� Demand for single-family homes is reviving, with first-time homebuyers beginning to come back into the market. Apartment construction is close to peaking.
The Mix of Growth is Shifting
� The economy is better for consumers than producers. Regions exposed to agriculture, energy, mining and manufacturing are seeing conditions weaken.
� The economy should weather the global economic slowdown. Exports will clearly decelerate. Real GDP was 2.4 percent in 2015 and expected to decelerate to 1.8 percent 2016.
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M&A Outlook – Key Themes
� Worldwide M&A activity experienced a 31.3% increase in 2015 over 2014
levels in global, announced volume; while M&A multiples increased from
9.7x YTD 2014 to 10.8x YTD 2015
� U.S. M&A surpassed pre-crisis levels with $2,161 billion worth of deals,
surpassing the pre-crisis highs of $1,356 billion in 2007
� Interest rate dynamics, commodity price pressures, equity market
volatility and China concerns may result in a plateau in deal making in
2016 in the U.S.; deal counts likely to remain robust, but the mega-deal
wave may have crested
� Activism will continue to influence board room decisions and
responsiveness to shareholders (e.g. Dow/DD) forcing a play for spin-offs
and corporate divestitures
� Strategics may be less likely to strike mega deals or splurge on high value
assets given macro economic landscape, opening the door for Sponsors to
be more active ($700bn+ dry powder)
� Continued weakness in energy and commodity prices will result in a
challenging year for capital formation activities in these sectors; however,
strong opportunities to engage in strategic discussions with clients
regarding M&A alternatives
Business leaders and investors remain optimistic and continue to look at M&A opportunities as compelling avenues for growth
Source: Thomson Financial
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Valuation 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
% Change 5.1% 0.8% 9.9% (14.9%) (8.4%) 5.1% 2.1% 0.2% 5.4% 3.4% 11.0%
$2,379
$3,248
$4,045
$2,506
$1,662
$2,155 $2,172 $2,111 $2,083
$3,201
$4,203
$1,046 $1,325 $1,356
$953
$581 $766
$907 $708
$979
$1,539
$2,161
9.6x 9.7x
10.6x
9.0x
8.3x 8.7x 8.9x 8.9x
9.4x 9.7x
10.8x
0.0x
2.0x
4.0x
6.0x
8.0x
10.0x
12.0x
14.0x
$0
$1,240
$2,480
$3,720
$4,960
$6,200
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
LTM
Valu
atio
n M
ultip
le
M&
A V
olu
me
Global Volume US Volume Global Transaction Multiples
RecoveryEconomic Expansion Recession / Uncertainty
� Global M&A volume increased 31.3% year-over-year in 2015 and U.S. M&A volume increased 40.4% reflecting signs of continued optimism
� Both strategic firms and financial sponsors are flush with cash that they are looking to deploy, increasing competition for quality assets
� Cross Border M&A activity totaled US$1.6 trillion in 2015, accounting for one-third of overall M&A volume and a 27.0% increase over 2014 levels
31
Announced M&A Volume and Valuation Multiples
Valuation Increases Represent Strengthened Desire for Premium Assets
Source: Thomson FinancialNote: Excludes equity carveouts, exchange offers, open market repurchases, valuation multiples greater than 20x and all transactions valued less than $25 million
($ in Billions)
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$535 $656 $804
$516 $281 $362
$517
$304 $443
$752 $923
$511
$669 $552
$437
$300 $404
$391
$404
$537
$786
$1,238
1,915
2,167 2,161
1,488
982
1,436 1,478 1,429
1,502
1,775
1,658
0
450
900
1,350
1,800
2,250
$0
$750
$1,500
$2,250
$3,000
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Num
ber o
f DealsM
&A V
olu
me
H1 Volume H2 Volume Number of Deals
32
� The U.S. M&A market generated $2,161 billion worth of deals through 2015 compared to $1,539 billion worth of deals through 2014
� Aggregate deal value increased year-over-year by approximately 40.4%
� The total number of deals decreased year-over-year by approximately 6.6% from 2014 to 2015
� Volatility in the equity markets and the announcement of mega-deals supported a robust M&A environment as U.S. M&A dollar volume exceeded pre-crisis levels
� Total non-investment grade bond issuance in Q4 2015 decreased to $36.5 billion from $63.7 billion in Q4 2014, and the total volume of non-investment grade loan issuance in Q4 2015 increased to $73.5 billion from $66.7 billion in Q4 2014
Announced U.S. M&A Activity
M&A Market Overview: Where Do We Stand Today?
Source: Thomson FinancialNote: Excludes equity carveouts, exchange offers, open market repurchases and all transactions valued less than $25 million
($ in Billions)
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YTD 2015 M&A Transaction Volume by Industry
Global 2015 United States 2015
Global 2014
Industrials18%
Energy and Power13%
Consumer & Retail12%
Financials9%
Real Estate8%
Healthcare17%
Technology12%
Telecom5%
Media and Entertainment
6%Industrials
15%
Energy and Power12%
Consumer & Retail12%
Financials6%
Real Estate5%
Healthcare27%
Technology14%
Telecom1%
Media and Entertainment
8%
United States 2014
Source: Thomson Financial Excludes open market repurchases
Industrials16%
Energy and Power15%
Consumer & Retail12%
Financials7%
Real Estate10%
Healthcare15%
Technology7%
Telecom7%
Media and Entertainment
11%Energy and Power
20%
Healthcare18%
Consumer & Retail12%
Industrials9%
Technology9%
Real Estate6%
Financials4%
Telecom5%
Media and Entertainment
17%
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$36 $41
$38
$31
$85
$62
$0
$15
$30
$45
$60
$75
$90
2010 2011 2012 2013 2014 2015
Tota
l Tra
nsaction V
alu
e($
billion)
398 394 352 346 399 # of Transactions: 288
23% 48% 37% 29% 38%
Top 5 Deals as a % of Total Transaction Value:
43%
398
Announcement Date: 7/29/15 9/28/15 9/21/15 8/6/15 8/10/15 10/6/15 11/17/15 12/11/15 12/11/15 12/14/15
Target: Cytec Arizona Chemical Pinova HoldingsOCI's Distribution
BusinessesRentech Nitrogen
LPCanexus A irgas DuPont
Dow Corning (50% stake)
Wiberg GmbH
Acquirer: Solvay SAKraton Perf.
Po lymersSymrise CF Industries CVR Partners Superio r P lus A ir Liquide Dow Dow Frutarom Industries
TEV ($mm): $6,400 $1,370 $417 $8,200 $839 $713 $13,400 $157,317 $9,600 $130
Rationale: Bolt-on Expansion Expansion Expansion Expansion Expansion Expansion Expansion Expansion Expansion
14.7x
7.4x
11.1x9.5x 9.7x
8.5x
13.7x
9.5x12.0x
6.9x
0.0x
5.0x
10.0x
15.0x
20.0x
Average Deal Multiples
CY 2014 10.2x
Q1 2015 10.5x
Q2 2015 11.1x
Q3 2015 10.0x
Q4 2015 9.6x
CY 2015 10.2x
34
There Continues to be a Significant Amount of M&A Activity in the Chemicals Space
Observations
Recent Mergers and Acquisition Activity (Q1 2015 – Current)
Note: Global deal volume only includes transactions that provide transaction valuesSource: Thompson Reuters, Company Disclosures, Chemical Week, Equity Research
Global Deal Volume (2010 – 2015)
Specialty Commodity
� Air Liquide acquires Airgas (announced 11/17/15)
� Acquisition of an industrial gas company
� $13,400 million enterprise value, 13.7x TEV/LTM EBITDA
� Solvay acquires Cytec (announced 7/29/15)
� Acquisition of a specialty composites company
� $6,400 million enterprise value, 14.7x TEV/LTM EBITDA
� A. Schulman acquires Citadel Plastics (announced 3/16/15)
� Acquisition of a specialty plastic compounder
� $800 million enterprise value, 10.7x TEV/LTM EBITDA
� Asahi Kasei and 3M acquire Polypore (announced 2/23/15)
� Acquisition of a specialty filtration company
� $3,200 million enterprise value, 19.0x TEV/LTM EBITDA
NCAA Educational Conference
Evolution of the Top 60 Chemical Producers: 2002 – Present
$48,111
$42,124
$27,060
$21,762
$15,319
$13,699
$13,200
$12,061
$10,724
$9,342
$7,326
$3,790
$1,984
$1,257
$0 $20,000 $40,000 $60,000
3M Company
DuPont
Dow
BASF
Bayer
Shin-Etsu
L'Air Liquide
SABIC
OccidentalPetroleum
Air Products
Average 11 - 20
Average 21 - 30
Average 31 - 40
Average 41 - 50
$94,619
$85,904
$62,838
$50,075
$49,379
$48,726
$47,975
$40,455
$40,124
$35,707
$26,370
$12,971
$8,610
$6,623
$0 $25,000 $50,000 $75,000 $100,000 $125,000
Bayer
3M Company
BASF
Dow
SABIC
OccidentalPetroleum
DuPont
Monsanto
Henkel
L'Air Liquide
Average 11 - 20
Average 21 - 30
Average 31 - 40
Average 41 - 50
1 Represents total closed deals from 1/1/2002 to 1/22/20152 Represents aggregate sums of transaction values Source: Company Disclosures, Capital IQ, Equity Research, ACC Global Business of Chemistry Report; Market data as of 1/22/2016
Top Producers in 2002 by Market Cap Top Producers Today by Market Cap
($ in millions)
Change M&A Activity
Market Cap TSR
518% 677%
79% 211%
189% 492%
85% 131%
309% 586%
354% 531%
14% 114%
704% 1,063%
378% 492%
171% 276%
289% 460%
189% 453%
232% 525%
200% 1,100%
# of Deals²Transaction
Value³
9 43,803
NA NA
40 22,188
NA NA
5 13,698
20 10,135
NA NA
25 6,828
28 11,875
38 5,726
15 9,554
13 4,117
11 1,357
15 4,041
� Market capitalizations among the top 50 producers increased three-fold since 2002, with the large having become even larger
� Key drivers include robust demand from emerging markets, capital investments to exploit North America’s low cost feedstock position and sector M&A consolidation
� By contrast, overall global chemical shipments have increased two-fold during the same period
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NCAA Educational Conference
The Top 50 Producers Have Been Rewarded for Large Scale, Seasoned Strategic Acquisitions
� Acquisitions have played a meaningful role in the growth of the industry’s largest players
� 12% of the largest 50 chemical companies in 2002 have subsequently been acquired by today’s top 50 producers
� Majority of transactions are strategic-to-strategic with a focus on increasing scale across core businesses and driving superior financial performance
� Global producers have targeted North American assets to increase leverage to region
� Acquirer share prices have outperformed the market for seasoned transactions, where investors have had the opportunity to see the transaction rationale play out and acquirers have reduced valuations paid by achieving significant synergies
� Investors have taken a “wait and see” approach to more recent transactions where the target has not been fully integrated by the acquirer (<3 years)
Note: Relative return is based on return above/(below) S&P Chemicals Index; acquisition time period is 2002 – 2012, capturing companies that have fully integrated target operationsSource: Company Disclosures, Capital IQ, Equity Research; Market data as of 1/22/2016
Seasoned, Large Scale M&A Transactions: Acquirer All In Return vs. S&P Chemicals Index Since Announcement
Commodity Chemicals Specialty Chemicals
Announcement Date:
01/09/06 01/24/06 11/22/06 05/21/07 08/06/07 08/13/07 12/03/07 07/10/08 07/11/08 11/12/08 03/12/10 06/22/10 04/04/11 05/31/11 07/11/11 07/20/11 01/27/12 07/26/12 10/12/12 12/14/12
Target: Engelhard BOC Quest GE PlasticsNational Starch
ICI UAP Rohm &
HaasHercules Ciba Terra Cognis Rhodia ISP Arch Nalco Solutia
Sud-Chemie
Permian Mud
AkzoNobel N.A.
Coatings
Acquirer: BASF Linde Givaudan SABICHenkel Group
Akzo Nobel Agrium Dow Ashland BASF CF BASF Solvay Ashland Lonza Ecolab Eastman Clariant EcolabPPG
Industries
TEV ($mm): $4,800 $16,593 $2,162 $11,600 $5,509 $15,868 $2,849 $18,985 $3,328 $5,500 $5,371 $3,818 $9,400 $3,200 $1,400 $8,100 $4,700 $2,496 $2,260 $1,050
TEV/EBITDA: 11.1x 10.8x NA 10.9x 16.1x 11.3x 12.9x 11.5x 8.5x 7.5x 13.4x 8.5x 7.3x 8.9x 9.5x 11.5x 9.2x 10.8x 11.3x 17.5x
Synergies as % of Target Revenue:
4.4% 4.7% 11.5% NA 13.6% 3.9% 3.5% 8.3% 5.3% 11.2% 8.6% 10.6% 4.4% 6.0% 3.6% 3.4% 4.8% 7.8% 10.7% 10.0%
TEV/Synergies Adjusted EBITDA:
7.6x 9.0x NA 10.9x 8.0x 8.9x 8.5x 7.8x 6.5x 4.1x 10.0x 4.8x 5.7x 7.8x 7.1x 9.4x 7.7x 7.2x 6.5x 5.0x
79%
30%
118%
(65%)
74%
(41%)
36%26%
93%74%
(4%)
(35%) (42%)
40%
94%73%
14%40% 46%
34%
(100%)
(50%)
0%
50%
100%
150%
200%
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NCAA Educational Conference
Current Campaigns
Recently Completed Campaigns
37
Activism in the Chemical Sector Continues in 2016
� ~$120 billion accumulated in activism funds necessitate another widening of the net cast by these investors, challenging management teams with enhanced scrutiny
Source: ThomsonOne, Company Disclosures; Market data as of 1/22/2016
Company Activist
Activist
Announcement Activist Demands Corporate Response
Stock Performance Since
Activist Date
S&P 500 Performance Since
Activist Date
Ashland Elmrox Investment Group 1/20/2016 Halt plans to spin off Ashland's Valvoline business
and instead seek a buyer for its specialty
chemicals unit at a time when deal-making in the
sector is robust
The Company has acknowledged input from its shareholders but
stands by its current plan
2% 1%
Intertape Polymer
Group
FrontFour Capital Group &
Zelman Capital
11/9/2015 Increase leverage and buyback shares, sell the
company, list in the U.S. and add experts to the
Board
The Company has acknowledged that it received the letter, but
has not made any further comments
5% (9%)
Axiall Franklin Resources 5/26/2015 Board of Directors should be more aggressive in
taking actions to increase shareholder value
Finalized JV ethane cracker agreement with Lotte Chemical (73%) (10%)
Royal DSM NV Third Point 7/18/2014 Sell off its non-nutrition businesses Sold off DSM Synres, Euroresins and a 65% stake in the Polymer
Intermediates & Composite Resins businesses and invested in a
sustainable resins plant
(29%) (3%)
Agrium ValueAct Capital 10/24/2014 Fine with the current strategy but plans to
monitor it
Increased dividend and sold Niota & Meredosia Storage and
Distribution assets
(6%) (2%)
Innophos FrontFour Capital Group 10/7/2014 Reduce GSTP exposure, improve capital spending
disclosures, increase dividend, increase share
repurchases and sell itself
$125 million share repurchase in 2015 and increased dividend (53%) (3%)
OM Group FrontFour Capital Group 1/9/2015 Repurchase stock, cut costs and nominated 3
candidates for the 8 member Board
Sold Company to Apollo and Platform Specialty Products NA NA
DuPont Trian Fund Management 1/8/2015 Split high growth and cyclical businesses, cut
costs and nominated 4 people for the 14 member
Board
DuPont won proxy fight against Trian, CEO stepped down since
then
(24%) (6%)
OMNOVA Barrington Capital 12/3/2014 Sell off Engineered Surfaces segment, increase
share repurchases and nominated 3 candidates
for the 8 member Board
Debt retirement, share repurchase program, increased
investment in specialty businesses & on improving core
businesses and electing 2 nominees from Barrington to the Board
along with 1 of its own choosing
(24%) (8%)
Materion GAMCO 3/6/2014 Write clauses to prevent issuance of preferred
stock for any anti-takeover purpose and
nominated 1 candidate for the 10 member Board
Wrote clauses to prevent issuance of preferred stock for any
anti-takeover purpose without shareholder approval, and
elected GAMCO's candidate to the 10 member Board
(25%) 2%
Dow Third Point 1/21/2014 Split the petrochemicals and specialty chemicals
businesses
Added 4 Board members (2 nominees from Third Point),
increased dividend, approved $5 billion share repurchase,
increased divestitures from $4-$5 billion to $7-$8.5 billion
0% 4%
LSB Industries Starboard Value 12/30/2013 Spin off air conditioning and heating business,
place chemical assets in a MLP and replace 7 of
the 14 Board members
Separating chemical and climate control units, exploring MLP
structure for chemical unit, reduced Board size from 14 to 13,
replaced senior leadership, , elected 5 StarBoard nominees to
the 13 member Board & added 3 of them to a new Strategic
Committee
(87%) 4%
Calgon Carbon Starboard Value 11/4/2013 Repurchase stock, place U.S. activated carbon
assets into an MLP and further reduce costs
Increased share repurchase program by $100 million, increased
the cost improvement program and signed 2 long-term coal
supply contracts
(23%) 8%
CF Industries Third Point 7/29/2013 Increase dividend Increased dividend (17%) 13%
DuPont Trian Fund Management 7/13/2013 Split high growth and cyclical businesses Performance Chemicals spinoff, $5 billion share repurchase and
cost reduction initiatives
1% 13%
Ashland Jana Partners 4/11/2013 Held discussions with Ashland regarding
capitalization, operations and strategy
Sold its water technologies business, restructured the business
into 3 units and hired a new CEO effective 1/1/15
27% 20%
Air Products Pershing Square 3/31/2013 Restructure the company, replace the CEO and
nominated 3 candidates for the 11 member Board
Initially added poison pill shareholder-rights plan, but ultimately
restructured the business, added 3 members to the Board,
replaced CEO, increased dividend and is divesting Materials
Technology segment
37% 22%
Ferro Corporation FrontFour 2/8/2013 Restructure the company, nominated 3
candidates for the 11 member Board and be a
part of the search for the new CEO
Added 3 Board members (2 nominees from FrontFour), formed a
Strategic Committee, sold Specialty Plastics division, refinanced
debt, acquired Tile Coatings Manufacturer and sold North
America based Polymer Additives business
77% 26%
Calgon Carbon Starboard Value 1/22/2013 Nominated 3 candidates for the 8 member Board Increased size of the Board from 8 to 9 members and elected 2
of the nominees
(3%) 28%
NCAA Educational Conference 38
M&A Activity Accelerated in 2014 and Remained Strong in 2015
Note: Includes selected transactions with disclosed valuation multiplesSource: Capital IQ, Company Disclosures, Equity Research, FactSet, Press Releases
Selected Recent Mergers and Acquisition Activity
Close
Date
Target
(Partial)Acquirer Target Business Description
Implied
Transaction
Value
LTM
EBITDA
TV / LTM
EBITDA
Specialty /
CommodityRegion
Pending Wiberg GmbH Frutarom Industries Develops spices, additives and flavor extracts, serving the processed meat and convenience food markets
$130 $19 6.9x Specialty Europe
Pending Dow Corning (50% stake) Dow Manufactures silicone-based materials including fluids, gels, greases and resins, serving the electronics, automotive, construction, textiles and healthcare end markets
$9,600 $800 12.0x Specialty North America
Pending DuPont Dow All-stock merger of Dow and Dupont with anticipated tax-free separation into three independent companies: Agriculture Business, Material Science Business and Specialty Products Business
$157,317 $16,585 9.5x Commodity North America
Pending Airgas Air Liquide Supplies industrial, medical and specialty gases serving the industrial, medical, construction and food & beverage end markets
$13,400 $975 13.7x Specialty North America
Pending Canexus Superior Plus Produces chlorine and caustic soda for the pulp & paper, industrial bleach, water treatment, oil & gas and distribution markets
$713 $84 8.5x Commodity North America
Pending Rentech Nitrogen LP CVR Partners Produces and sells nitrogen fertilizer products in the United States and internationally
$533 $86 9.7x Commodity North America
Pending OCI's Distribution Businesses CF Industries Global producer and distributor of nitrogen fertilizers and methanol $8,200 $864 9.5x Commodity North America
1/7/2016 Pinova Holdings Symrise Provider of ingredients from natural and renewable sources used in the production of perfumes, fragrances and oral care products
$417 $37 11.1x Specialty North America
1/6/2015 Arizona Chemical Kraton Perf. Polymers Leading global producer of highly-engineered polymers derived from pine wood pulping co-products for the adhesives, roads & construction, fuel additives/lubricants, and oilfield chemicals end markets
$1,370 $184 7.4x Specialty North America
12/9/2015 Cytec Solvay SA Composite materials and mining chemicals manufacturer $6,400 $433 14.7x Specialty North America
12/9/2015 Magenta Master Fibers PolyOne Corporation Innovative developer of specialty solid color concentrates for the global fiber industry
$22 $3 6.8x Commodity North America
12/1/2015 Alent Platform Specialty Products
Global supplier of specialty chemicals and engineered materials $2,254 $172 13.1x Specialty Europe
10/28/2015 Argotec Schweitzer Mauduit Leading manufacturer of thermoplastic polyurethane $215 $23 9.3x Specialty North America
10/28/2015 OM Group
(Electronic Chemicals & Photomasks)Platform Specialty Products
Offers chemicals and photomasks for the electronics and semiconductor markets $365 $28 13.0x Specialty North America
10/28/2015 OM Group Apollo Global Offers magnetic, battery and specialty chemical technologies for the semiconductor, automotive, industrial, and energy markets
$1,019 $102 10.0x Specialty North America
10/23/2015 OCI Resources LP
(73% LP + 2% GP interest)Ciner Group Trona based soda ash producer $578 $125 7.5x Commodity North
America
NCAA Educational Conference 39
M&A Activity Accelerated in 2014 and Remained Strong in 2015
Note: Includes selected transactions with disclosed valuation multiplesSource: Capital IQ, Company Disclosures, Equity Research, FactSet, Press Releases
Selected Recent Mergers and Acquisition Activity
10/6/2015 Dow Chlorine Products Olin Produces chlorine, caustic soda, epoxy resins and chlorinated organics for the alumina, pulp & paper, industrial bleach, water treatment, coatings, foams, refrigerants, polyvinyl, construction, adhesives and electronics markets
$5,000 $640 7.8x Commodity North America &
Europe
10/1/2015 AVINTIV Berry Plastics Global leader in nonwovens, plastic packaging and specialty materials with a focus on the personal care, hygiene, healthcare, wipes, filtration and construction markets
$2,450 $303 8.1x Specialty North America
8/26/2015 Polypore Asahi Kasei & 3M Produces thermocomposites and thermoplastic compounds for transportation, industrial, construction and consumer applications
$3,200 $168 19.0x Specialty North America
8/3/2015 GrowHow UK
(50% Stake)CF Industries Largest UK producer of nitrogen fertilizer $1,160 $147 7.9x Specialty Europe
7/31/2015 Dow AgroFresh
(60% stake)Avenue Capital Provides post-harvest specialty chemical solutions to help preserve crop quality $879 $95 9.3x Specialty North
America
6/26/2015 Zep New Mountain Capital Produces cleaning and maintenance chemicals for the sanitation, industrial, personal care and automotive markets in North America and Europe
$692 $59 11.8x Specialty North America
6/3/2015 Citadel Plastics A. Schulman Produces thermocomposites and thermoplastic compounds for transportation, industrial, construction and consumer applications
$800 $75 10.7x Specialty North America
4/21/2015 Cheminova FMC Multinational crop protection company that also provides organophosphorous intermediates used in producing of its plant protection products
$1,800 $149 12.1x Specialty Europe
4/7/2015 Axalta Coating Systems
(9% stake)Berkshire Hathaway Manufactures performance coatings for the transportation and industrial markets $6,222 $841 11.3x Specialty North
America
4/2/2015 FMC
(Alkali Chemicals)Tronox World leader in producing trona-based products such as soda ash $1,640 $164 10.0x Specialty North
America
3/16/2015 DSM - Polymers and Resins
Businesses
CVC Capital Partners Global provider of caprolactam, acrylonitrile and composite resins $813 $131 4.8x Commodity Europe
3/11/2015 Penford Ingredion Develops, manufactures and markets specialty ingredient systems for a variety of food and industrial products
$340 $21 16.3x Specialty North America
2/17/2015 Arysta LifeScience Platform Specialty Products
Global leader in crop protection and life sciences. Specializes in marketing and distributing crop protection brands and plant nutrition products
$3,510 $294 11.9x Specialty North America
2/3/2015 Dow Angus Golden Gate Capital Produces nitroalkanes and their derivatives $1,215 $110 11.0x Specialty North America
2/3/2015 Bostik
(Subsidiary of Total)
Arkema S.A. Leading global adhesives specialist in industrial manufacturing, construction and
consumer markets
$2,250 $205 11.0x Specialty Europe
2/2/2015 Tonsan Adhesive H.B. Fuller Company Largest independent engineering adhesives producer in China $225 $20 11.3x Specialty Asia
1/12/2015 Rockwood Albemarle Provider of lithium and surface treatment for battery, metal procession, aerospace, and automotive markets
$6,200 $390 14.2x Specialty North America
Close
Date
Target
(Partial)Acquirer Target Business Description
Implied
Transaction
Value
LTM
EBITDA
TV / LTM
EBITDA
Specialty /
CommodityRegion
NCAA Educational Conference
North American Chemicals Market Landscape
Chemical Equities Have Come off Record Trading Levels with the Decline in Oil and Weaker Ag Fundamentals
� Select chemical stocks across subsectors underperformed the S&P 500 by ~7% YTD 2016� Since oil peaked on 6/19/2014, chemical stocks have underperformed by ~24%� Analysts remain bullish on the sector with 53% Buy | 45% Hold | 2% Sell ratings, with average
upside to target price of ~19% � Compares to 51% Buy | 46% Hold | 3% Sell a year ago, and average upside of ~10%
Robust M&A Activity
� ~$62 billion in 2015 North American chemical sector volume driven by portfolio optimization, consolidation and sponsor activity
� Strategics focus on deals which enhance core businesses and drive financial performance as internal plans do not support investor growth expectations
� Financial buyers have significant capital uninvested, combined historically low cost debt
After a Drought, IPOs Reemerged but with Mixed
Results
� Market receptivity to new chemical equity issuances in North America has been unfavorable� Univar down 40% since its June 2015 IPO (diversified specialty chemical distributor)� Chemours down 77% since its July 2015 spin-off (highly-levered commodity player)� Rayonier Advanced Materials down 80% since its January 2014 spin-off (fibers market in a
secular decline)
Refinancings / New Issuances Continued Amid Low Rates but Have Stalled Recently
� Debt refinancings and new issuances continued in 2015 driven by historically low rates� $13.2 billion in Investment Grade chemicals transactions in 2015, down 42.8% YoY� $7.3 billion in High Yield chemicals transactions in 2015, more than double the 2014 amount� $29.0 billion in Term Loan B chemicals transactions in 2015, down 17.8% YoY
Changing Strategic Landscape
� Market capitalizations among the top 50 producers has increased three-fold since 2002� The large have gotten larger, accelerated by mega-mergers (Dow-DuPont, Air Liquide-Airgas)� Greater scale is in turn enabling a refocus with DowDuPont, Air Products and Ashland all
expected to execute spin offs in 2016
� Lower oil prices, monetary stimulus and end market growth support continued favorable conditions for North American chemical producers� Strong fundamentals in auto production, construction and consumer spending
� The global economy remains characterized by a moderate and uneven recovery, accompanied by subdued inflation
� Emerging markets are mixed with a slow down in China fueling demand concerns globally
Current Macro Trends Support Continued Growth
for the Chemicals Sector, but at a More Modest Clip
40
NCAA Educational Conference
57
28 20
40
60
80
100
120
6/14 9/14 12/14 3/15 6/15 9/15 12/15
Indexed S
hare
hold
er
Retu
rn
Commodity Index Crude Oil
41
Commodity Producers: Impact of Lower Oil Prices
…and Valuation Multiples have DecreasedCommodity Producers have Traded Down as Crude Prices Slide…
% Change in Feedstock Price Required to Match Ethane Cash Costs
6/19/2014
(40%)
(30%)
(20%)
(10%)
0%
10%
20%
30%
0
50
100
150
200
250
300
Propane Butane Naphtha Gas Oil
Perc
ent
Change R
equired
Feedst
ock
Price
(c
ents
/gallon)
Actual Feedstock Price Required Feedstock Price % Change in Feedstock Price
Upside to Price Target
6/19/2014 1/22/2016
1.8% 24.3%
6.4x
7.4x
6.0x
7.0x
8.0x
9.0x
10.0x
1/14 4/14 7/14 10/14 1/15 4/15 7/15 10/15 1/16
EV /
NTM
EBIT
DA
Commodity Index Average
R-Squared
0.89
Peak Oil Price6/19/2014
Note: See Appendix for Indices Details. Index excludes Sinopec Shanghai Petroleum Co.Source: Equity Research, FactSet, IHS; Data as of 1/22/2016
Today (1/21/2016)
(40%)
(30%)
(20%)
(10%)
0%
10%
20%
30%
0
50
100
150
200
250
300
Propane Butane Naphtha Gas Oil
Perc
ent
Change R
equired
Feedst
ock P
rice
(cents
/gallon)
Actual Feedstock Price Required Feedstock Price % Change in Feedstock Price
� The change in oil prices over the past few months has eroded the North American ethane price advantage versus naphtha to 6% (from 31% before oil collapsed)
� Ethane is no longer advantaged relative to such other feedstocks as propane and butane
NCAA Educational Conference
40
60
80
100
120
140
160
1/14 4/14 7/14 10/14 1/15 4/15 7/15 10/15 1/16
Indexed S
hare
hold
er
Retu
rn
Diversified Specialty Health & Nutrition Industrial Gases
Industrial Minerals Paints & Coatings
42
Scale Drives Higher Valuations Across Specialty Chemicals Peers
Current Valuations are Mixed Relative to Historic AveragesDownstream Specialty Sectors have Outperformed
5-Year Average TEV / NTM EBITDA
8.0x 8.8x
9.6x
0.0x
2.0x
4.0x
6.0x
8.0x
10.0x
12.0x
<$2.5 Billion $2.5-$10 Billion $10 Billion+
EV /
NTM
EBIT
DA
Enterprise Value
6.0x
8.0x
10.0x
12.0x
14.0x
1/14 4/14 7/14 10/14 1/15 4/15 7/15 10/15 1/16
EV /
NTM
EBIT
DA
Diversified Specialty Health & Nutrition Industrial Gases
Industrial Minerals Paints & Coatings
Industrial Minerals Industrial Gases Diversified Specialty Paints & Coatings Health & Nutrition
2-Year TSR (26.5%) (13.0%) (13.0%) 4.9% 26.3%
1-Year TSR (21.3%) (16.1%) (6.1%) (13.1%) 0.0%
Diversified Specialty Industrial Minerals Industrial Gases Paints & Coatings Health & Nutrition
Current 8.0x 9.3x 10.0x 10.2x 11.5x
2-Year Average 9.0x 8.9x 10.6x 11.4x 11.9x
Note: See Appendix for Indices DetailsSource: Capital IQ, Equity Research, FactSet; Data as of 1/22/2016
Current TEV / NTM EBITDA
8.3x
9.3x
10.3x
7.0x
7.5x
8.0x
8.5x
9.0x
9.5x
10.0x
10.5x
11.0x
11.5x
12.0x
<$2.5 Billion $2.5-$10 Billion $10 Billion+
EV /
NTM
EBIT
DA
Enterprise Value
NCAA Educational Conference
Chemicals High Yield and High Grade Trading Levels Continue to Rise
High Yield Trading History
Investment Grade Trading History
6.58%
9.75%
10.54%
4.00%
5.50%
7.00%
8.50%
10.00%
11.50%
Jan-15 Feb-15 Mar-15 Apr-15 May-15 Jun-15 Jul-15 Aug-15 Sep-15 Oct-15 Nov-15 Dec-15 Jan-16
YTW
BB Index B Index HY Chemicals Index
3.03%
4.41%
3.24%
2.00%
3.00%
4.00%
5.00%
Jan-15 Feb-15 Mar-15 Apr-15 May-15 Jun-15 Jul-15 Aug-15 Sep-15 Oct-15 Nov-15 Dec-15 Jan-16
YTM
A Index BBB Index IG Chemicals Index
Note: High Yield Chemicals Index composed of Ashland, Axiall, Borden, Celanese, Chemtura, Cornerstone, Eagle Spinco, Eco Services, Graftech, Hexion, Huntsman, Ineos, JAC Holding, JM Huber, Kissner Milling, Koppers, Kraton, LSB, Nexeio, Nova Chemicals, NuFarm, Olin, Omnova, Perstorp, Polymer Group, Polyone, PQ Corp, Reichhold, Rentech, Rockwood, SPCM and TamincoNote: Investment Grade Chemicals Index composed of Abbott Laboratories, Abbvie, Actavis, Agrium, Air Products & Chemicals, Albemarle, Allergan, Amal LTD, American Home Products Corp, Amgen, AstraZeneca, Baxalta, Bayer Corp, Bio-Rad Laboratories, Biogen, Bristol-Myers Squibb, Cabot Corp, Celgene, Celulosa Arauco y Construction SA, CF Industries, Church & Dwight, Clorox, Colgate Palmolive, CVS Health, Cytec Industries, Dow Chemical, DuPont, Eastman, Edwards Lifesciences, Eli Lilly & Co, EMD Finance, Estee Lauder, FMC Corp, Forest Laboratories, Genentech, Genzyme, Glaxosmithkline, Hexcel, Hospira, IMC Global, Incitec Pivot, International Flavors & Fragrances, Johnson & Johnson, SC Johnson & Son, Lubrizol, LyondellBasell, Mapco, Merck & Co, Methanex, Monsanto, Morton International, Mosaic, Mylan, NewMarket Corp, Novartis, Pfizer, Pharmacia Corp, Potash Corp, PPG Industries, Praxair, Proctor & Gamble, Roche Holdings, Rohm & Haas, RPM International, Sanofi-Aventis, Schering Plough, Sherwin Williams, Syngenta, Takeda, Teva, Union Carbide, Valspar, Watson Pharmaceuticals, Westlake Chemical, Wyeth, Yara International, Zeneca Wilmington, ZoetisSource: Advantage Data and BofA Merrill Lynch Global Index System; Market data as of 1/22/2016
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NCAA Educational Conference
Wells Fargo’s Historical High Grade Bond Bookrunning Leadership Across the Chemical Industry
Size Tenor Coupon Spread
Issue Date Issuer Moody's S&P ($M) (yrs) Maturity (%) (bps)
7/22/2015 The Valspar Corporation Baa2 BBB 350 10 1/15/2026 3.950% 168
1/29/2015 Praxair, Inc A2 A 150 2 2/3/2017 FFE+33 33
1/29/2015 Praxair, Inc A2 A 400 10 2/5/2025 2.650% 95
1/29/2015 Praxair, Inc A2 A 200 30 TAP 11/7/2042 3.550% 125
1/15/2015 The Valspar Corporation Baa2 BBB 250 30 2/1/2045 4.400% 205
1/15/2015 The Valspar Corporation Baa2 BBB 250 10 2/1/2025 3.300% 155
12/1/2014 Albemarle Corporation Baa3 BBB- 700 EUR 7 12/8/2021 1.875% 140
11/17/2014 Albemarle Corporation Baa3 BBB- 250 5 12/1/2019 3.000% 140
11/17/2014 Albemarle Corporation Baa3 BBB- 425 10 12/1/2024 4.150% 185
11/17/2014 Albemarle Corporation Baa3 BBB- 350 30 12/1/2044 5.450% 240
11/5/2014 Cytec Industries Inc Baa2 BBB- 250 10 5/1/2025 3.950% 160
10/9/2014 INVISTA S.à r.l. Ba1 BBB 750 5 9/15/2019 4.250% 270
7/28/2014 Air Products & Chemicals A2 A 400 10 7/31/2024 3.350% 90
6/12/2014 Airgas, Inc Baa2 BBB 300 10 7/15/2024 3.650% 108
5/6/2014 Eastman Chemical Baa2 BBB 500 30 10/15/2044 4.650% 135
11/7/2013 Mosaic Company Baa1 BBB 900 10 11/15/2023 4.250% 168
11/7/2013 Mosaic Company Baa1 BBB 500 20 11/15/2033 5.450% 173
11/7/2013 Mosaic Company Baa1 BBB 600 30 11/15/2043 5.625% 188
2/26/2013 Cytec Industries Inc Baa2 BBB 400 10 4/1/2023 3.500% 170
2/11/2013 Airgas, Inc Baa2 BBB 325 5 2/15/2018 1.650% 85
2/11/2013 Airgas, Inc Baa2 BBB 275 7 2/15/2020 2.375% 105
12/4/2012 Sherwin-Williams Company A3 A 700 5 12/15/2017 1.350% 75
12/4/2012 Sherwin-Williams Company A3 A 300 30 12/15/2042 4.000% 125
11/19/2012 Airgas, Inc Baa2 BBB 250 10 11/15/2022 2.900% 130
10/18/2012 RPM International Inc Baa3 BBB- 300 10 11/15/2022 3.450% 165
7/30/2012 Praxair, Inc A2 A 500 10 8/15/2022 2.200% 72
7/9/2012 Monsanto Company A1 A+ 250 10 7/15/2022 2.200% 70
7/9/2012 Monsanto Company A1 A+ 250 30 7/15/2042 3.600% 100
5/29/2012 Eastman Chemical Baa2 BBB 900 10 8/15/2022 3.600% 195
5/29/2012 Eastman Chemical Baa2 BBB 500 30 9/1/2042 4.800% 200
Source: Bloomberg & Wells Fargo Securities
2014-2015 High Grade Chemical League Table
Rank Underwriter
Number of
Deals
Market
Share
1 Bank of America Merrill Lynch 15 19.5%
2 Wells Fargo Securities 9 11.7%
2 J.P. Morgan 9 11.7%
4 Citigroup 7 9.1%
5 Goldman Sachs 6 7.8%
6 Morgan Stanley 5 6.5%
7 HSBC 4 5.2%
7 Deutsche Bank 4 5.2%
7 RBC 4 5.2%
10 Credit Suisse 3 3.9%
Value-Added Role as a Bookrunner
Avg. New Issue Concession
Avg. Orderbook Oversubscription
2.03 bps
7.00 bps
0 bps
3 bps
6 bps
9 bps
4.4x4.0x
0 bps
1 bps
2 bps
3 bps
4 bps
5 bps
Chemical Bonds Since 2014 WFS Active BooksChemical Bonds Since 2014 WFS NOT Active Books
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#1 Bank Brand GloballyBrand Finance (2014)
Wells Fargo has Built a Top-Tier Investment Bank with Significant Momentum
Source: Wells Fargo unless otherwise specified; Market Capitalization and CDS spreads as of 1/22/2016 per Capital IQ; all other data as of FY 2014 unless otherwise notedNote: All market share and league table information reflects domestic rankings and/or market share1 Includes equity and equity-linked transactions
#1 Lead Bank to Middle Market Companies
Largest Market Capitalization of U.S. Banks;
AA- Credit Rating
#3 in U.S. Investment Banking Transactions
~1,900 Capital Markets and Advisory Executions in 2014
Leading Market Positions in:
� High Grade Bonds� High Yield Bonds� Asset-Based Lending� Leveraged Loans� High Grade Loans� Common Equity� Convertible Bonds
Among World’s 50 Most Admired Companies
FORTUNE 2014
Key 2014 Achievements
2014 Result Comparison to 2010
IBCM Revenue Up 41%
ECM Book-run Transactions 1 Up 46%
#3 High Yield Platform Up from #8
M&A Volume Up 69%
Current Market Capitalization
5-Year CDS Spreads
($ in Billions)
$250
$210
$141$121
$69$49 $46 $35 $26
6377
8595 96
103 105 105
128($ in Billions)
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Representative Clients
Wells Fargo’s Global Chemicals Investment Banking Practice
Commodity Agriculture Specialty
Wells Fargo’s dedicated Global Chemicals practice provides comprehensive advisory and capital-raising services to private & public companies and financial sponsors
Key relationships with leading chemical companies and investors across the space
Over $6.8 billion in committed capital dedicated to the Global Chemicals sector
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