lululemon athletica inc. vs. under armour inc. square capital management following the divestiture...

Brightleaf SquareCapital Management

Mitesh Amarthaluru, Derek Chait September 24, 2015

FMC Corporation(NYSE: FMC) - Long

1


Following the divestiture of the Alkali Chemicals Division, FMC Corporation’s shifting focus to Agricultural Solutions

and aggressive roll-up strategy provides an attractive asymmetric risk/reward opportunity over a 1-year time horizon.

INVESTMENT EDGES

Recommendation: BUY 1Y Target: $61.52 (+69.25%)Current Price: $36.35

Investment Thesis (NYSE: FMC)

• FMC Corporation operates in an oligopolistic industry with high barriers to entry, market share stability, and high ROIC levels

• Deep competitive moat in an industry with strong customer retention rates and stable recurring revenue capability

• Shifting concentration toward Agriculture Solutions reshapes the business model toward asset-light and high-margin solutions

• Strategic M&A and divestiture policy exchanges non-core businesses with those in the niche specialty chemicals space

• Clear pathways for value recognition through recent/upcoming spin-offs and effective capital allocation by management

• Investor misunderstanding of both the cyclical environment of the crop protection chemicals market combined with the recent

divestiture of Alkali Chemicals depressed FMC share price

• Low pest pressures and drought may continue to stall pesticide demand, leading to inventory buildups

• Inflationary pressures in LATAM and FX headwinds damper top line growth prospects

RISKS

2

-

1,000.0

2,000.0

3,000.0

4,000.0

5,000.0

2011 2012 2013 2014 2015

Ag. Solutions Health and Nutrition Lithium Alkali

3Brightleaf SquareCapital Management

Company OverviewBACKGROUND INFORMATION

• Three key business lines: (1) Agricultural Solutions, (2) Health & Nutrition,

and (3) Lithium

• Sold (4) Alkali Chemicals in Mar. ’15 and bought Cheminova in Apr. ’15

• Ag. Solutions: Later-stage development and sale of crop protection products

• Management has announced plan to sell off Consagro subsidiary

• Health & Nutrition: Portfolio of specially designed solutions to enhance food,

pharmaceutical, and nutraceutical products

• Management has announced plan to sell off Pectin division

• Lithium: Leading industry position with diverse end markets

• Focus on energy storage and polymer sectors

MANAGEMENT

SALES BREAKDOWN BY SERVICE ( M )

SHIFT IN BUSINESS CONCENTRATION

• Secular trend toward consolidation of specialty chemicals industries

• FMC strategy geared toward bolt-on acquisition and divestiture policy

• Special names involved in specialty chemicals:

• Mar. ’15: Bill Ackman discloses 31% stake in Platform Specialty Products

• Aug. ’14: Warren Buffett announces 6% stake in Dow Chemical Co.

COMPANY OVERVIEW

• Recently-appointed management team (2010): All 20+ years prior experience

• Management cohort spear-headed effective capital allocation strategy

• Continued share buybacks by both Management & BOD acts as catalyst

• Persistent margin expansion initiatives, growing bottom-line

FY 2014 Revenue Pro Forma FY 2015

$4.0B $4.5B

54%76%

19%

6%

21%

19%

5%

44%

21%

18%

17%

Sales by Region

Alkali

Divestiture

Share Price 36.35$ EV (M) 6,687.8

MCAP (M) 4,846.1 ROIC 17.8%

Net Debt (M) 1,841.7 Net Debt / EBITDA 1.7x


Development of Main Business LinesEVOLUTION OF AGRICULTURAL SOLUTIONS

• Operating in an oligopolistic industry with high barriers to entry

• Protective “moat” with competitive advantage

• FMC’s lithium carbonate demand has grown at 10.1% CAGR since 2011

• Controls 15% of the global supply

• Limited number of established producers with functioning mining operations

• FMC mines in Argentina’s Puna Plateau 70% of world’s lithium stores

• Interested in squeezing out smaller, neighboring producers

• Increasing energy storage applications

• Batteries in mobile consumer devices

• Electrification of the transportation industry

• Aerospace applications

• FMC stock provides indirect exposure to lithium industry

PREMIUM FOR LITHIUM

• Adapting in a consolidating industry: “The Big Six”:

• Continued growth of high-margin fungicide vertical

• Cheminova acquisition provides immediate access to European

markets with little regulatory pressure

• Fungicide exposure still below industry average room to grow

14%

38%

48%

9%

42%

48%

FMC AG. SOLUTIONS PRODUCT MIX

• Low natural gas prices Major component in nitrogen-based chemicals

• Enables further R&D funding in growing BioSolutions platform

• 2015: 14 products 2017: ~25 products commercialized

• End of El Niño cycle and corresponding drought situation in LATAM

• Poor planting conditions low pest pressure

• 2014 LATAM sales decreased 5% due to weakened demand for crop

protection chemicals

• Brazilian insecticide market was down 15%

• Unsubstantiated concerns over infestation-resistant GMO seeds

• Pest evolution requires consistent application of insecticides in

order to prevent mass infestation

LITHIUM SALES BY END USE

Glass, ceramics, construction and other conventional applications

Alloys

Cost Synergies~ $90M

Revenue Synergies~ $30M


Catalysts: Acquisitions, Alliances & CollaborationsBOLT-ON ACQUISITION & DIVESTITURE POLICY

MISUNDERSTANDING OF RECENT M&A

2010 2011 2012 2013 2014 2015

Market Access JV Biological Agreement

2 Bio Acquisitions Fungacide Agrement

2 Fungicide Acquisitions GAT Microencapsulation

Fluthiacet-Methyl Cheminova3 Tech Agreements

Chr. Hansen / CAEB

Market Access JV

Licensing Agreements

Consargo [Brazil]

Pectin [Italy]

• Divestitures of low-margin facilities

• Shift to manufacturing of higher-value

specialty products

PLAN• Acquisition of smaller, more specialized companies with proven operational abilities

• Expand Market Share: Provide additional services, technological capabilities,

and geographic penetration to the acquirer

• Acquirers often pay a lower valuation multiple and buy target at a discount

• Divestitures of businesses that are no longer in line with management expectations

• Spin-off sectors that do not provide new growth avenues for the company

EXECUTION• Management always open to “buying products and technologies opportunistically”

• Special emphasis on broadening Agricultural Solutions portfolio and

strengthening end-market access worldwide

• Taking advantage of industry consolidation and building “economic moat”

• Spin-offs of low-margin businesses will provide immediate influx of cash

• Cash used for future acquisitions, stock buybacks, and debt retirement

30

35

40

45

50

55

60

65

70

1/2/2015 3/2/2015 5/2/2015 7/2/2015 9/2/2015

Sto

ck P

rice

($

)

Sale of Alkali Chemicals Division

MITIGANTS

• Sale of Alkali Chemicals Division in March 2015

• No sale of Lithium Division Selling pressure from event-driven funds

• Utilized $1.6B of proceeds to fund $1.8B Cheminova

• Further selloff in line with high market skepticism regarding acquisition

• Quicker realization of Cheminova synergies than

expected

• Immediate integration into portfolio mix

• Expecting to achieve synergies of $30-40M in

2015 (prior guidance $25-30M)

• $120M of total synergistic gains by 2017

• Additional revenue-based synergies from access to

Cheminova presence in European markets

• Further cost savings synergies including: (1) supply

chain efficiencies, (2) eliminating surplus facilities

and other G&A expenses, (3) headcount reduction

Purchase of Cheminova


ValuationSCENARIO ANALYSIS

35

45

55

65

75

85

Sep-13 Jan-14 May-14 Sep-14 Jan-15 May-15 Sep-15

Pri

ce (

$)

FMC Stock Price

Base: $61.52 (69.25%)

Bear: $50.50 (38.93%)

Bull: $74.21 (104.15%)

DCF VALUATION ANALYSIS – PRICE TARGET OVER 1 YR

COMPS ANALYSIS

SCENARIO BULL BASE BEAR

FMC

Fundamentals

In-line with management-provided

guidance; Growing BioSolutions;

Margin expansion; Cyclical rebound

Conservative projections reaching

back to pre-Cheminova March price

Low pest pressure; Drought

continues; Revenue synergies

delayed

WACC 6.37% 7.37% 8.37%

POST-DILIGENCE OPINION

• This trade presents an opportune asymmetric risk/reward investment:

• Market misunderstanding of the cyclical nature of FMC and misunderstanding

of Cheminova transaction tanked FMC share price

• Base Case: FMC stock price should reach back to pre-Cheminova levels

because Cheminova adds much more value than previously spun-off FMC

Alkali Chemicals Division

• Recurring revenue capability ensures a sustainable asset-light business model

• Management is shedding low-margin businesses to increase bottom-line

conversion

• Bolt-on acquisitions support increasing market share and economies of scale

Comparable Price Target:

Bull: $62.22

Base: $49.21

Bear: $37.10

Price Target:

Comparable Price Target:2015 EV/EBITDA Mean Range

7

AppendixSLIDE TITLE SLIDE NUMBER

Potential Buyout – DuPont (NYSE: DD) 8

Potential Corn Hedge 9

Large-Scale Trends 10

Declining Arable Land / Capita 11

Specialty Names in Specialty Chemicals 12

FMC Discounted Cash Flow Analysis 13-14

FMC Comparable Company Analysis 15

Ag. Solutions Comparable Company Analysis 16

Sources 17

One-Slider 18



“Everybody’s a buyer…”ACQUISITION SYNERGIES

• “Big Six” have bought > 200 companies since mid-1990s

• Increase economies of scale internationally

• FMC remains an attractive takeover candidate by DuPont

• DuPont especially remains focused on agriculture, nutrition,

industrial biosciences and advanced materials

• Management inclined to take more aggressive steps to alter company

• Five year plan: Acquisitions to revitalize its growth prospects

• Larger investors may attempt to alter the direction of the company

• Result of sustained underperformance

• The “new FMC” should give the company’s shares a higher valuation

• Still clearly small enough for larger DuPont to acquire

DuPont M&A Volume and Value Trend

ENHANCING PORTFOLIO

0

2000

4000

6000

8000

0

1

2

3

4

2011 2012 2013 2014 2015

“We continue to

understand what

our options are.”

– Ellen Kullman

• Confirmation that multiple Ag. Solutions lines are required to be successful

• Must have both GMO seed and chemical crop protection services

• Resistance have built to DuPont “Intacta” seeds

• Returning $4B from Chemours divesture back to shareholders

• $2B already returned in form of share buybacks

• Remaining $2B likely to be returned in the form of M&A (2015-16)

• Strong Free Cash Flows from divestment of low-margin businesses

has acquired

$6.3B

($5.8B cash, 500M debt)

2011

has acquired

$440 million

2012

Precedent Transactions

Capital Returned to Shareholders

9

Potential Corn Hedge


• Downward price pressure

• Corn and USD negatively correlated

• Corn prices decrease to remain competitive

in global market

• Fed Rate Hike will force market to lower price

• Strong dollar sign of weak global economy and

decreased demand

• Economic turmoil in China and struggles in

Europe reducing need for feed stock

• USDA crop report comes out in October

• Estimates reducing production 100mm

bushels

• East Coast of US expecting very poor yields

because of wet Spring

• Falling Oil Prices dragging Corn with it

• Cheap oil deterring ethanol demand

• Less demand for corn

• Used as potential hedge for FMC trade if DuPont

does not announce acquisition.

CORN – POTENTIAL HEDGING OPPORTUNITY


Larger-Scale TrendsOIL & NATURAL GAS CORRELATION

BREAKDOWN• While no clear, consistent relation exists among the two commodities,

a small value positive correlation is generally visible

• Oil and natural gas are close substitutes for each other

AGRICULTURAL IMPACT• Natural gas is the main input in ammonia main input in nitrogen

fertilizers and select crop protection chemicals

• Over half of all U.S. chemical fertilizers are nitrogen-based

• Provides cost savings and cheap energy resources for agricultural

sector

• Potential transition to farming technologies that are powered by

compressed natural gas instead of diesel

• El Nino Southern Oscillation: Caused by warm ocean temperatures

shifting from their usual position in the western Pacific to the

eastern Pacific along the coast of South and Central America

• Incredibly dry frequent thunderstorms

• Current pattern is the strongest in almost two decades

• Indications that the winds forcing warm sea surface temperatures

eastward are weakening

• Possible return to more normal conditions

EL NIÑO

2

2.5

3

3.5

4

4.5

5

35

45

55

65

75

85

95Oil & Natural Gas Correlation

Oil (Brent Crude) Natural Gas


Declining Arable Land / CapitaGLOBAL POPULATION GROWTH

• Increases in production will largely rely on increasing yields

• Increasing yields are highly contingent on an increased use of fertilizer-based

products and crop protection chemicals

• Producers remain optimistic about the long-term industry fundamentals

• Rising consumption of meat around the globe

• General affordability of fertilizers relative to grain prices

ARABLE LAND PER CAPITA (HA)

PROJECTED SOURCES OF GROWTH IN CROP PRODUCTION


Special Names in Specialty ChemicalsBILL ACKMAN

Chief Executive Officer

Pershing Square Capital Management• Q2 2013: Position in Air Products & Chemicals (NYSE:APD)

• March 31, 2015: Announces 31% stake in Platform Specialty Products

Corp (NYSE: PAH)

• Platform Specialty also partakes in bolt-on acquisitions

• Structured as a special-acquisition company maintains large

amounts of cash to partake in frequent acquisitions

• Buying sprees to take advantage of synergy potentials and to

bolster chemicals and engineering materials portfolio

• Such serial acquirers have come under fire by market participants

• Ackman maintains that they are simply misunderstood by

investors

WARREN BUFFET

Chief Executive Officer

Berkshire Hathaway• 2011: Berkshire acquires specialty chemical company Lubrizol (NYSE:

BRK/A:US)

• “Perfect vehicle” for bolt-on acquisitions and frequent, small

transactions in various business units

• Three transactions in next year and a half each low risk, and

with integration, they add substantially to earnings over time

• August 2014: Discloses 6% stake in Dow Chemical Co. (NYSE: DOW)

• Previously funded Dow’s acquisition of specialty chemical

company Rohm & Haas Co. to increase shareholder value

13

FMC DCF Analysis


Historical Year

2012 2013 2014 2015E 2016 2017 2018 2019 2020 2021 2022 2023 2024

Revenues

Ag Solutions 1,764 2,146 2,174 3,420 3,625 3,843 4,073 4,318 4,577 4,851 5,142 5,451 5,778

Health & Nutrition 681 762 828 835 852 869 886 904 922 940 959 978 998

Lithium 257 239 262 287 314 344 376 412 451 494 541

Minerals 966 970 779

Eliminations (1) (3) -

Total Revenues 3,410 3,875 4,038 4,494 4,739 4,998 5,273 5,565 5,875 6,204 6,553 6,923 7,317

Cost of goods sold 2,142 2,534 2,663 3,531 3,766 4,014 4,233 4,447 4,674 4,913 5,164 5,430 5,710

Gross Profit 1,268 1,340 1,375 963 973 984 1,041 1,118 1,201 1,291 1,388 1,493 1,606

Gross Profit Margin 37.2% 34.6% 34.1% 21.4% 20.5% 19.7% 19.7% 20.1% 20.4% 20.8% 21.2% 21.6% 22.0%

Check 0.000 0.000 0.000

Ag Solutions EBIT 498 703 660 713 770 831 898 970 1,047 1,131 1,222

% revenue 22.9% 20.6% 18.2% 18.5% 18.9% 19.3% 19.6% 20.0% 20.4% 20.8% 21.1%

Health & Nutrition EBIT 188 199 213 222 232 242 253 265 277 289 302

% revenue 22.7% 23.8% 25.0% 25.6% 26.2% 26.8% 27.5% 28.2% 28.9% 29.6% 30.3%

Lithium EBIT 27 26 30 34 39 44 50 57 64 73 83

% revenue 10.5% 11.0% 11.5% 11.9% 12.3% 12.8% 13.2% 13.7% 14.2% 14.7% 15.3%

Add: Synergies 35 70 15

Other 140 166 208

SG&A 490 516 621

EBIT 639 659 545 963 973 984 1,041 1,118 1,201 1,291 1,388 1,493 1,606

% rev 18.7% 17.0% 13.5% 21.4% 20.5% 19.7% 19.7% 20.1% 20.4% 20.8% 21.2% 21.6% 22.0%

% change 1.0% 1.2% 5.8% 7.4% 7.5% 7.5% 7.5% 7.6% 7.6%

Check 0.000 0.000 0.000

Add: Depreciation & Amortization 116 127 131 149 181 215 254 296 323 341 360 381 402

EBITDA 755 786 677 1,112 1,153 1,199 1,294 1,413 1,524 1,632 1,748 1,874 2,009

% Margin 22.1% 20.3% 16.8% 24.7% 24.3% 24.0% 24.5% 25.4% 25.9% 26.3% 26.7% 27.1% 27.5%

Taxes 144 159 83 328 331 335 354 380 408 439 472 508 546

EBIAT 495 500 462 636 642 649 687 738 793 852 916 985 1,060

Plus: Depreciation & Amortization 116 127 131 149 181 215 254 296 323 341 360 381 402

Less: Capital Expenditures (177) (222) (225) (247) (260) (275) (290) (306) (323) (341) (360) (381) (402)

(Increase)/Decrease in Net Working Capital (304) (354) (160) (178) (188) (198) (209) (220) (117) (124) (131) (138) (146)

Unlevered Free Cash Flow 130.4 52.0 209.1 359.5 374.3 392.1 441.7 506.9 675.2 728.0 785.2 847.0 913.9

Projected Year

CAGR for 2016-2020 Revenues

Ag Solutions 6.0%

Health & Nutrition 2.0%

Minerals 9.5%

CAGR for 2016-2020 EBIT

Ag Solutions 8.0%

Health & Nutrition 4.5%

Minerals 13.5%

Exit Multiple

6.8 7.3 7.8 8.3 8.8

6.4% $61.21 $64.46 $67.71 $70.96 $74.21

6.9% $58.34 $61.44 $64.54 $67.64 $70.75

7.4% $55.60 $58.56 $61.52 $64.48 $67.44

7.9% $52.99 $55.82 $58.64 $61.47 $64.29

8.4% $50.50 $53.20 $55.90 $58.59 $61.29

WA

CC

Terminal Growth Rate

1.0% 1.5% 2.0% 2.5% 3.0%

6.4% $86.61 $94.14 $103.40 $115.05 $130.17

6.9% $76.92 $82.91 $90.13 $99.00 $110.17

7.4% $68.78 $73.62 $79.36 $86.29 $94.80

7.9% $61.86 $65.82 $70.47 $75.97 $82.61

8.4% $55.90 $59.19 $62.99 $67.45 $72.73

WA

CC

14

FMC DCF Analysis Cont.


Annual Assumptions (Adjust Projections As Needed)

Ag Solutions Growth (%) 21.7% 1.3% 6.0% 6.0% 6.0% 6.0% 6.0% 6.0% 6.0% 6.0% 6.0% 6.0%

Health & Nutrition Growth (%) 11.9% 8.7% 2.0% 2.0% 2.0% 2.0% 2.0% 2.0% 2.0% 2.0% 2.0% 2.0%

Lithium Growth (%) 0.4% -19.7% 9.5% 9.5% 9.5% 9.5% 9.5% 9.5% 9.5% 9.5% 9.5% 9.5%

Ag Solutions EBIT Growth (%) 8.0% 8.0% 8.0% 8.0% 8.0% 8.0% 8.0% 8.0%

Health & Nutrition EBIT Grwoth (%) 4.5% 4.5% 4.5% 4.5% 4.5% 4.5% 4.5% 4.5%

Lithium EBIT Grwoth (%) 13.5% 13.5% 13.5% 13.5% 13.5% 13.5% 13.5% 13.5%

Depreciation and Amortization (% of Sales) 3.4% 3.3% 3.2% 3.3% 3.8% 4.3% 4.8% 5.3% 5.5% 5.5% 5.5% 5.5% 5.5%

Capital Expenditures (% of Sales) -5.2% -5.7% -5.6% -5.5% -5.5% -5.5% -5.5% -5.5% -5.5% -5.5% -5.5% -5.5% -5.5%

Effective Tax Rate 22.5% 24.1% 15.2% 34.0% 34.0% 34.0% 34.0% 34.0% 34.0% 34.0% 34.0% 34.0% 34.0%

Change in Working Capital (% of Sales) -8.9% -9.1% -4.0% -4.0% -4.0% -4.0% -4.0% -4.0% -2.0% -2.0% -2.0% -2.0% -2.0%

Target Capital Structure

Debt-to-Total Capitalization 33.7%

Equity-to-Total Capitalization 66.3%

Cost of Debt

Cost of Debt 4.5%

Tax Rate 34.0%

After-tax Cost of Debt 3.0%

Cost of Equity

Risk-free Rate 2.2%

Market Risk Premium 8.0%

Beta 0.9

Cost of Equity 9.7%

WACC 7.4%

WACC CalculationWACC 7.37% WACC 7.37%

Net Present Value of FCF $3,887.94 Net Present Value of FCF $3,887.94

Terminal Growth Rate 2.00% EBIDTA Exit Multiple 7.8

Terminal Value $17,371.55 Terminal Value $12,530.16

Present Value of TV $8,534.23 Present Value of TV $6,155.77

Enterprise Value $12,422.17 Enterprise Value $10,043.71

Less Debt 2319.2 Less Debt 2319.2

Less Preferred Securities 0 Less Preferred Securities 0

Less Noncontrolling Interest Less Noncontrolling Interest 0

Plus: Cash and Equivalents 477.5 Plus: Cash and Equivalents 477.5

Equity Value $10,580.47 Equity Value $8,202.01

133.3 133.3

$79.36 $61.52

36.35$

118.33% 69.25%

Perpetuity Growth Method Exit Multiple Method

Perpetuity Potential Upside: Exit Multiple Potential Upside:

Diluted Shares:

Equity Value Per Share

Diluted Shares:

Equity Value Per Share

FMC Corp Share Price as of 09/24/2015

1051.0 1076.0 1101.0 1126.0 1151.0

7.53 37.10 37.99 38.87 39.75 40.63

9.53 46.97 48.09 49.21 50.33 51.44

11.53 56.81 58.16 59.51 60.87 62.22

Assumed # shares (mm): 133.3EBITDA Range (US$mm)

2015E EV/EBITDA Multiple

Range (Using Mean):

15

FMC Comparable Company Analysis


Share Price Market Enterprise

Company Share Price % of Cap Value EBITDA P/E

Ticker (US$) 52 week high (US$mm) (US$mm) (US$mm) LTM CY2014E LTM CY2014E CY2014E

Axiall Corporation AXLL 21.86 42.6% 1,543 2,989 394 0.7x 0.6x 7.6x 7.4x 33.6

PolyOne Corporation POL 30.94 75.1% 2,743 3,566 344 1.0x 0.9x 10.4x 9.9x 37.3

Westlake Chemical Corp. WLK 52.11 54.5% 6,875 6,926 1,348 1.5x 1.6x 5.1x 5.3x 10.3

CF Industries Holdings CF 52.03 74.0% 12,126 16,268 2,053 3.7x 3.2x 7.8x 7.3x 9.6

Eastman Chemical Co. EMN 69.25 77.9% 10,295 17,439 2,217 1.8x 1.9x 7.8x 8.6x 17.0

Cytec Industries Inc. CYT 74.18 99.3% 5,307 5,926 299 2.9x 2.9x 19.8x 18.7x 37.8

Mean 50.06 70.6% 6,481 8,852 1,109 1.9x 1.9x 9.8x 9.5x 24.3

Median 52.07 74.6% 6,091 6,426 871 1.7x 1.8x 7.8x 8.0x 25.3

High 74.18 99.3% 12125.5 17,439 2,217 3.7x 3.2x 19.8x 18.7x 37.8

Low 15.00 67.4% 1542.7 2,989 299 0.7x 0.6x 5.1x 5.3x 9.6

FMC Corp FMC 36.35 58.3% 5,045 6,926 1,101 1.7x 1.7x 8.6x 7.9x 12.8

Enterprise Value as a Multiple of

Revenue (x) EBITDA (x)

P/E Multiple Range (Using Mean P/E)

22.3 23.3 24.3 25.3 26.3

2.11 46.98 49.09 51.20 53.31 55.42

2.31 51.44 53.75 56.06 58.37 60.68

2.51 55.89 58.40 60.91 63.42 65.93

Assumed # shares (mm): 133.3

2015E EPS Ranges:

P/E Multiple Range (Using Median P/E)

23.3 24.3 25.3 26.3 27.3

2.11 49.16 51.27 53.38 55.49 57.60

2.31 53.82 56.13 58.44 60.75 63.06

2.51 58.48 60.99 63.50 66.01 68.52

2015E EPS Ranges:

Assumed # shares (mm): 133.31051.0 1076.0 1101.0 1126.0 1151.0

7.53 37.10 37.99 38.87 39.75 40.63

9.53 46.96 48.07 49.19 50.31 51.43

11.53 56.81 58.16 59.51 60.87 62.22



Range (Using Median):

16

Ag. Solutions Comparable Company Analysis


Share Price Market Enterprise

Company Share Price % of Cap Value EBITDA P/E

Ticker (US$) 52 week high (US$mm) (US$mm) (US$mm) LTM CY2014E LTM CY2014E CY2014E

Monsanto MON 88.10 81.4% 41,216 49,014 4,648 1.4x 1.4x 8.3x 8.3x 20.0

Dow DOW 43.31 50.2% 50,157 68,836 8,908 3.1x 3.0x 11.7x 12.7x 23.0

Syngenta SYT 68.82 85.8% 31,983 35,926 2,713 2.1x 1.1x 11.3x 10.1x 23.3

Bayer BAYRY 130.25 96.0% 107,711 117,835 9,228 1.0x 0.9x 12.4x 11.0x 21.4

Du Pont DD 47.53 62.1% 43,007 50,741 4,816 0.9x 0.9x 10.1x 9.6x 18.7

BASF BASFY 76.17 100.0% 69,961 78,079 11,301 2.6x 2.4x 17.7x 15.6x 27.3

Mean 75.70 79.3% 57,339 66,739 6,936 1.8x 1.6x 11.9x 11.2x 22.3

Median 72.50 83.6% 46,582 59,789 6,862 1.8x 1.2x 11.5x 10.5x 22.2

High 130.25 100.0% 107710.8 117,835 11,301 3.1x 3.0x 17.7x 15.6x 27.3

Low 15.00 67.4% 31982.6 35,926 2,713 0.9x 0.9x 8.3x 8.3x 18.7

FMC Ag. Solutions 808

Enterprise Value as a Multiple of

Revenue (x) EBITDA (x)

P/E Multiple Range (Using Mean P/E)

20.3 21.3 22.3 23.3 24.3

1.56 31.54 33.10 34.66 36.21 37.77

1.76 35.60 37.36 39.11 40.87 42.62

1.96 39.66 41.61 43.57 45.52 47.48


2015E EPS Ranges:

P/E Multiple Range (Using Median P/E)

20.2 21.2 22.2 23.2 24.2

1.56 31.42 32.97 34.53 36.08 37.64

1.76 35.45 37.21 38.97 40.72 42.48

1.96 39.49 41.45 43.40 45.36 47.32


2015E EPS Ranges:

757.6 782.6 807.6 832.6 857.6

10.20 36.23 37.42 38.62 39.81 41.01

11.20 39.79 41.10 42.42 43.73 45.04

12.20 43.33 44.76 46.19 47.62 49.05


Range (Using Mean):


757.6 782.6 807.6 832.6 857.6

9.53 33.85 34.96 36.08 37.20 38.31

10.53 37.38 38.61 39.85 41.08 42.32

11.53 40.95 42.30 43.65 45.00 46.36



Range (Using Median):

17

Sources

•Bloomberg, Financial Analysis FMC

•Thompson One, Financial Statements FMC

•FMC Investor Relations

•DuPont Investor Relations

•Marketline Equity Research

•Wright Investors Service Equity Research

•Cowen and Company FMC August 2015

•Piper Jaffray FMC August 2015

•Jefferies FMC Estimate Change, August 2015

•Buysellsignals Equity Research Report FMC July 2015

•Credit Suisse Equity Research August 2015

•Seeking Alpha (FMC)


WORKS CITED

Investment Thesis : FMC Corporation operates three main business lines: Agricultural Solutions, Health & Nutrition, and Lithium. Investor misunderstanding of both the cyclical environment of the crop protection

chemicals market and the recent divesture of Alkali Chemicals Division have depressed the share price despite FMC’s success in focusing business concentration on asset-light, high-margin Ag. Solutions, and a

complementary, aggressive roll-up strategy. FMC, near 52-week lows, provides an asymmetric risk/reward opportunity over the next year in an industry marked by attractive fundamentals and high barriers to entry.

FMC Corporation (NYSE: FMC) - LongMitesh Amarthaluru, Derek Chait

Catalysts – Bolt-On Acquisition & Divesture Policy :

• Frequent, strategic M&A in the specialty chemicals space enhances corporate business

operations and provides new and geographically-dispersed avenues for growth

• Impending sales: (1) Consagro subsidiary [Brazil] (2) Pectin manufacturing facility [Italy]

• Immediate influx of cash and divestment of low-margin businesses

Catalysts – Management-Induced Drivers :

• Continued share buybacks by both Management and BOD Sept. 2: $4.5M combined

• After de-levering of balance sheet, further potential to return cash to shareholders

• Margin expansion initiatives Developing asset-light business model and reducing CAPEX

• Faster than anticipated cost savings are offsetting high inventories of Ag. Solutions

Misunderstanding of Recent M&A Mitigants :

• Unexpected sale of Alkali Chemicals Division in March 2015 Selling pressure from event-

driven funds unnecessarily depressed share price

• Utilized $1.6B of proceeds to fund $1.8B Cheminova acquisition and shield debt ratio

• Further selloff in line with high market skepticism regarding acquisition

• Quicker realization of Cheminova synergies than expected Integration into portfolio mix

• Expecting to achieve synergies of $30-40M in 2015 (prior guidance $25-30M)

• $120M total of synergistic gains expected by 2017

• Additional revenue-based synergies from access to Cheminova presence in European markets

• Flexible fungicide regulations in European Union member states

• Further cost savings synergies including: (1) supply chain efficiencies, (2) eliminating surplus

facilities and other G&A expenses, (3) headcount reduction

Risks :

• Low pest pressures and drought continue to stall pesticide demand Inventory buildups

• LATAM: Inflationary pressures in Argentina and FX headwinds damper top line growth

Special Names in Specialty Chemicals :

• March 2015: Bill Ackman announces 31% stake in Platform Specialty Products Corp

• Maintains bolt-on/special-acquisition chemical companies are simply misunderstood

• Aug 2014: Warren Buffett discloses 6% stake in Dow Chemical Co.

Agricultural Solutions – Insecticides, Herbicides, and Fungicides :

• Low natural gas prices Further R&D funding in growing BioSolutions platform

• 2015: 14 products commercialized 2017: ~25 products commercialized

• End of El Niño cycle and corresponding drought situation in Brazil

• 2014 LATAM sales decreased 5% due to weakened demand for insecticides

• Unsubstantiated concerns over infestation-resistant, GMO seeds

• Pest evolution requires consistent application of insecticides

The Lithium Factor :

• Operating in an oligopolistic industry with high barriers to entry

• FMC controls 15% of the global supply Protective “moat” with competitive advantage

• Increasing applications for lithium products drove demand at 10.1% CAGR since 2011


FY 2014 Revenue Pro Forma FY 2015

Company Overview

$4.0B $4.5B

54%76%

19%

6%

21%

19%

5%

44%

21%

18%

17%

Sales by Region

Acquisitions, Alliances, and Collaborations

2010 2011 2012 2013 2014 2015

Market Access JV Biological Agreement

2 Bio Acquisitions Fungacide Agrement

2 Fungicide Acquisitions GAT Microencapsulation

Fluthiacet-Methyl Cheminova3 Tech Agreements

Chr. Hansen / CAEB

Market Access JV

Licensing Agreements

DCF Valuation AnalysisDCF Valuation Analysis – Price Target Over 1-Year Horizon

• Bull Case: Management

provided guidance; Growing

BioSolutions; Margin

expansion; Cyclical rebound

• Base Case: Conservative

projections reaching back to

pre-Cheminova March price

• Bear Case: Low pest

pressure, Drought continues;

Rev synergies delayed20

35

45

55

65

75

85

Pri

ce (

$)

FMC Stock Price

Base: $61.52 (69.25%)

Bear: $50.50 (38.93%)

Bull: $74.21 (104.15%)

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