i'm sure it has to do with this whole crude oil situation. remember, their raw materials (including products they buy from my company) are generally derivatives of crude oil, so their input costs are going to be increased which could lead to a squeeze in margins. i think you are seeing this impact on all chemical companies today. Dow is down over 4% as well. i don't believe margins will in fact be squeezed that significantly if they run their business properly. we are raising prices (including theirs) 10% next quarter to be sure we cover input cost increases...i'm sure they will do the same.

The part I liked most was that through the second quarter EBITDAR was $30M above their projected ("budget") rate. However, July was slightly ($4M below), so they decided not to amend their projection. Seriously? This stands up in a court of law? Apparently the first six strong months meant nothing but one slow month makes a trend? The entire global economy took a breath in July and August. Manufacturers reduced production and drew down inventory. I simply cannot believe that Skadden let this BS fly. Let's just say that they only end up $20M above their projection in the second half...so $50M for the year. That is roughly $200-250M additional enterprise value (on the low side) or an additional $1/share to shareholders. How can this be ignored??? I just don't understand how someone can rush a huge decision like this that affects so many people. Why can we not wait for Q3 results (apparently Nov 5th) to prove that earnings won't continue at that $60M per year above their projection??? Horrible...

No worries. As a sarcastic person myself I should have seen that...I guess I'm just a little sensitive nowadays!

I don't know who "we" are that don't think Chemtura will do well. All chemical companies are doing well right now (at least all of my customers - which are most of the majors). I have no reason to think Chemtura will be any different. The bonds trading well above par (plus interest) tells you that the market knows that this company is way undervalued and that we (equity) are being shafted. There is no way that this company is or was ever insolvent. Pure manipulation of the law. I have definitely been scarred for life in terms of our judicial system. A painful learning experience. That's life in the fast lane I guess.

For what it is worth, here is the note that Chemtura sent out to its suppliers on 10/24 (as such it is in the public domain). My point in posting is that I also believe we will see emergence very soon.

"Dear valued Supplier,

I wanted to share this good news with you right away.

Chemtura Corporation announced that the United States Bankruptcy Court for the Southern District of New York issued a decision confirming its Plan of Reorganization would. The Plan will become effective after the Court enters a written order reflecting this ruling and other Plan conditions have been satisfied.

We are expecting to emerge from Chapter 11 in the upcoming weeks, as soon as the Plan conditions are satisfied.

As Craig Rogerson comments in the press release, "We are very proud of all that we have been able to accomplish and look forward to working with all of our stakeholders following our emergence. I would like to thank our employees for their ongoing commitment to our company, and our customers and suppliers for their support throughout this process. We will continue to be a leading diversified global developer, manufacturer and marketer of performance-driven, engineered specialty chemicals, and we are committed to global sustainability through 'greener technology' and to developing engineered chemical solutions that meet our customers' evolving needs."

I would like to personally thank you for your support during this period. It is greatly appreciated.

Thanks & Best Regards"

oaps, got your PM. I am not a premium subscriber so I cannot PM. If you send me an e-mail address I will answer your question via e-mail.
Jack

thanks oaps...definitely looking forward to the 3rd quarter results and praying for justice (no approval of Debtor's POR).

Agree completely regarding quarterly results vs MOR. Also, I added my disclaimer about not including global ops and uncertainty about the COGS. In my experience revenue is relatively meaningless, or at least you cannot view it in a vacuum. Margin is what matters. If your revenue goes up by $100M but your variable costs (feedstock, energy, etc.) go up by $150M your margin (and therefore profit) drops. Anyway, I was really just pointing out that it was hard for me to accept statement that were being made that management was hiding profit in this particular MOR. I saw no evidence provided by anyone, just statements. We're all rightly skeptical about their motives, but we shouldn't make things up.

Oh, and as a BRKB shareholder I would fully support their purchase of Chemtura! Mr. Buffet, are you listening?

Guys, those who recall my prior posts know that I have been here since the beginning and I have been the first one to criticize management for "managing" their earnings. However, in this case you are off base. This was not a good MOR. Excluding a write-UP of $39M they only made $1M of Operating Profit. The way to judge the business is to look at the variable margin (some people call it gross margin). This is Net Sales ($199M) less Cost of Goods Sold ($169M). Variable margin of $30M is not enough for this company. After paying fixed costs (SG&A) of $16M plus R&D of $3M this leaves only $11M which is not near enough to pay interest and capex. Not a good month. Not sure if this includes overseas ops (I have read before that it doesn't???) and without additional detail I cannot see if there was something tied up in the cost of goods sold (for instance, I have no idea of whether or not they use LIFO-based accounting which is designed to reduce earnings to lower taxes for companies and can greatly skew monthly figures). The cash flow statement will tell the "truth"...cash is king and cannot be hidden. I will have to have a look at their cash flow statement this weekend.

Just telling it like it is. I still hold my shares and still believe that the future of this company is very bright. If I were a venture capitalist or in M&A for another chemical firm I would buy these assets for $2+/share in a heartbeat. That said, CEM will not be alone with some subpar results. This quarter (Jul-Sep) saw the general chemical industry take a breath. Was true for my company and was the general consensus of our customers as well. There was a general slowdown in activity and a lot of companies decided to draw down inventory a bit. You will see some earnings misses in the chemical industry. Activity has picked up again in October for sure. Like I said, just calling 'em like I see 'em. Looking forward to better results...good luck to all...

Not trying to pump or anything. As most of you know, Chemtura is a customer of mine and I have been a holder since last March. Anyway, I have definitely seen this trend in the industry. Lots of M&A activity going on. My company hasn't been very active in the past, but even we are sitting on a historical amount of cash and looking at downstream acquisitions. Anyway, this was an article posted by the American Chemistry Council (ACC). I would post the link, but you must be a subscriber.

07 October 2010 22:00 [Source: ICIS news]

US chemical M&A activity races to beat year-end tax deadline
By Joseph Chang

NEW YORK (ICIS)--US chemical industry mergers and acquisitions (M&A) activity continues to accelerate ahead of a year-end tax deadline, industry experts said on Thursday.

“We have seen a huge pickup in M&A activity in the past few months, from both strategic buyers and the private equity community,” said Chris Cerimele, director and head of chemicals at US-based investment bank Houlihan Lokey.

“Many sellers are trying to beat the tax deadline,” he added.

Lokey spoke at a meeting hosted by the Chemical Marketing & Economics Group.

The US capital gains tax rate of 15% is set to rise to 20% in 2011 unless the Obama administration extends tax cuts from former President George W Bush.

“Since mid-spring, we have seen greater deal flow in the chemical industry – more towards the commodity side,” said Drew Shea, managing partner at US private equity firm GenNx360 Capital Partners.

In August 2009, GenNx360 Capital Partners acquired the silicones business of Swiss specialty chemical company Clariant. The business is now called SiVance.

Jeff Kolke, senior vice president of GE Capital, noted that the pipeline and backlog of financings for acquisitions was robust for the fourth quarter, as players seek to close deals before US tax cuts expire at the end of the year.

“The fourth quarter is looking very strong, but we don’t have good visibility into 2011,” he said.

Industrial players are also looking to sell in a decent M&A environment to focus on core businesses, noted Bill Rowland, partner at US law firm Jones Day.

“Strategics are finally starting to prune portfolios as businesses have stabilised and the bottom fishers have left the market,” he said.

And private equity firms, which went on a chemical buying spree from 2000-2007, are looking to sell assets as they come within or beyond their targeted holding period of 3-5 years.

“We’ve seen private equity firms put up assets that they’ve held onto for even six to nine years, as some tried to sell in 2008 but had to pull them from the market because of the financial and economic crisis. There is a lot of pent-up selling pressure,” said Cerimele.

“It’s a ripe time to sell as credit markets are coming back and LPs (limited partners) are looking to get their money back. Time is your enemy with respect to IRR (internal rate of return),” said Shea.

On the buy side, many chemical companies are flush with cash to make acquisitions since emerging from the downturn of 2008-2009 with stronger balance sheets.

“LANXESS has a growth strategy that entails two-thirds organic growth and one-third from acquisitions,” said Raymond Newhouse, chief financial officer of the US arm of German specialty chemical firm LANXESS.

“We see significant opportunities coming our way,” he added.

In May, LANXESS announced a $10m (€7.2m) investment in US biofuel and biochemical company Gevo as part of a planned cooperation to produce isobutene from renewable resources.

Regarding the trading stuff, it just started popping up on my screen today too for some reason. It's the Ibox. Just click on "Hide Ibox" (just above the discussion board) to hide it.

oaps, the other day I was talking to a friend of mine who used to be in M&A with Celanese (another large chemical company). He is puzzled that someone, either venture capital or another chemical company, hasn't come forward with such an offer - e.g. pay off 2009 bond plus interest due, reinstate other bonds, present an offer to buy the company for ca. $1/share (ca. $250M). It would be a steal. Chemical companies are sitting on a record amount of cash. I understand the idea of managing risk and being cautious during these uncertain times, but sooner or later they will have to get some guts and start to invest that cash again if they want to grow.

Yes, I think you should leave it alone. I don't think "many" people have the same questions. The man did more for us than anyone. He has said that he sold below where it currently sits. You spoke of inside knowledge. If he used inside knowledge (which he didn't) then he did a pretty poor job (as of where it sits today). Look, he had his reasons. He "lost" more than most of us because he couldn't sell at the peak because he was working for us. Give the man (and the rest of us) a break please. Let's focus our energies on trying to save our ownership of this company...

My "no" submitted today...

Demand for durable goods rose 0.3 percent last month, the Commerce Department said Wednesday. The overall increase was driven by a 75.9 percent increase in orders for commercial airplanes.

So, let me get this straight, Mesa can't utilize (or sublease) their aircraft because business is down but other airlines are ordering NEW aircraft???

Durable goods orders rise 0.3 percent in July

Thanks BBalls. Great find. I think our case mirrors Antelope Technologies perfectly (albeit based on limited info). The bottom line is that the Chemtura POR was certainly not in good faith and was clearly designed “to gain an unfair advantage in the shareholder litigation.” We all know that Chemtura is profitable (ignoring our beloved writedowns and restructuring costs) and spitting out cash (the best indicator of solvency). As such, there is very compelling evidence of an "absence of any clear need for financial reorganization."

Thanks MC. Very thorough as always, and you put it much more eloquently than my brief drivel...

They are not idiots, they are simply greedy and have no values, no regard for shareholders. They are simply working the system to squeeze as much out of this bankruptcy as possible. There are many companies that were far worse off that gave a bigger piece of the new pie to shareholders. It is likely because management of those companies had a bigger stake (i.e. held more shares) of the "old" company. So, IMHO, it is a combination of a broken system and lack of values. There should be a law that management cannot receive more value post-BK than they would receive if existing shares remained in tact. Wouldn't that be a logical check and balance to ensure they uphold their fiduciary duty? I guess it would make too much sense! LOL Note, this is obviously not a laughing matter in any way, but sometimes laughter is the only thing keeping me sane with regards to this robbery...

You are not missing anything. They are screwing around with the figures in a big way. This is a well-performing company at the existing debt level. Here is how I see the financial results for Q2. I will take out "non-recurring" debits and credits to try to get a view of how on-going operations look.

Gross profit was $199M, but this included a $49M credit for changes in allowable claims and $2M in equity income, so it is "really" $148M. SG&A ($71M), D&A ($45M), R&D ($11M) = total operating costs of $127M which means ongoing operating profit of ca. $21M. Interest expense should have been ca. $9M (they added $108M for the total interest payable upon exit), so profit before tax was ca. $12M. Pay 35% tax and you get ca. $8M x 4 = $32M annual = ca $0.13/share, so around $1.50/share or so (depending on what P/E you want to use).

Bottom line is, if you take away all of the smoke and mirrors they are making money...maybe not as much as they would like, but they are making money at the existing debt level. They are anything but insolvent. They could dilute us by 75% (i.e. give us $25M of the new $100M shares). This is the equivalent of doing a reverse split (say 10:1) and offering 75M new shares at $15/share (given above value of $1.50/share). This would dilute existing shares by 75% but still give us $1.50/share in value and raise over $1B to reduce debt (pay of interest due plus 2009 & 2016 bonds, reinstate 2026 bond). It is not the home run that everyone was looking for, but wouldn't everyone win there (except that the creditors wouldn't be able to steal a solvent company)???

Isn't the whole basis for diluting equity that they felt they were too leveraged? So, let me get this straight...they want to dilute us down to 5%, give the company to the creditors, and THEN borrow money??? Surely I am missing something here...

Here is a great article posted on the Chemtura board regarding shareholders' rights in bk cases. It's a nice read and some food for thought...

http://www.turnaround.org/Publications/Articles.aspx?objectID=9658

Yep, surely they have people with much more financial skills and knowledge than me...I'm just a lowly engineer! :)

They generated $67M in cash from operating activities. That is a big number that cannot be hidden. As I said, cash is king and they cannot play around with cash from operations...it tells the truth.

MOR looked very promising to me. The fundamentals (gross margin is the key) of the company continue to improve. I only look at EBITDA, which for the month (excluding their changes to the claims allowance) was $37M. This is a very nice figure indeed. Annualized it would be $444M which is even above the high end of MC's analysis (thanks MC by the way - well done as usual). They can try to keep hiding profits, but cash is king, and with that kind of EBITDA, they will continue generating gobs of cash...plenty for their growth strategy without crushing the shareholders. I'm lovin' it!!

Thanks Jax. As I said wasn't trying to stir up anything. The document was signed 5/17/10 and the list was included as an exhibit. Guess it was just an oversight.

As I said before, my company's earnings are projected to be our best since mid-2008. I am hearing the same thing from my customers (including Chemtura). We are a mid-sized chemical firm that sells into almost every market segment. I can't imagine their results will not continue to improve with the rest of the chemical sector.

Huh, is it me, or is Mr. Jon Eric Jacks missing from the list of EC Members?? Not trying to stir up any trouble, but just something I noticed...

Exactly. He also said the following in Sep09:

"Chemtura is now generating cash. We filed for Chapter 11 - not so much because of profitability but because of liquidity issues as debt was coming due and the banks weren't lending,"

Chemtura Seeks to Restructure and Exit Chapter 11 Bankruptcy

Business has only improved since then. I'm not sure how a business that is profitable and generating cash can be hopelessly insolvent. I guess he changed his tune when he was offered 2.5% ownership of the new company by the wolves guarding the hen house.

Anyone who travels a lot (like I do) knows that planes are full and fares are going up. There are fewer and fewer sales going on...or should I say that there are fewer and fewer days, between fewer and fewer cities that fare sales apply. Maybe these airlines are waking up and realizing that they actually have to charge higher fares to make money...such an interesting concept...

I receive a daily newsletter from the American Chemistry Council (ACC). Sorry, no link because you must be an ACC member (password protected). This was the "top story" yesterday. Strong company in an industry that continues to improve. My bet is that they blow away their EBITDA targets. Everyone else in the industry continues to beat estimates (including my company), why wouldn't they? All ships rise with a rising tide...

ACC: U.S. chemical sector bounces back in 2010; positive outlook ahead
The U.S. chemical industry is undergoing a "surprisingly good recovery in demand," as annual output is predicted to rise by between 6% to 7%, according to the American Chemistry Council. That increase is driven by domestic consumption as well as exports to Asia and Latin America. "At midyear, it is apparent that the U.S. economy has reached a transition phase, shifting from an economy driven by inventory changes [end of destocking and start of restocking] and stimulus spending, to one that is self-sustaining," ACC economists said. U.S. economic growth is expected to taper off in the next two years, but chemical growth will remain healthy, the report added. ICIS News (U.K.)

I don't think that is necessary. The EC is aware of this and they are our voice. I posted it just to remind them.

Exactly the point I was going to make. When they entered bk, Rogerson said that it was not that the company wasn't insolvent, it was strictly because credit was not available to refinance the 2009 bond. Business has only improved since then. I have said many times and will continue to say, this company is not over-leveraged. UBS knows this and should have no difficulty in convincing the judge of the same. They can benchmark CEMJQ debt vs other companies quite easily. Then, if they do in fact have the refinancing lined up (I have no reason to believe they don't), the company would maintain the same debt that it had prior to bk which (again) was not too high. They are in fact trying to steal the company from the shareholders...criminal...

'following the payment of the first six Monthly Advisory Fees, all
additional Monthly Advisory Fee payments shall be credited against the "Transaction Fee" (as defined below);'

Once again it sure seems like this one will get done pronto (if not tomorrow). I'm sure that UBS doesn't want to work for "free" for too long after July 7th.

I understand your viewpoint, but in my view nothing has changed from when it ran up into the 50's. Sure, they rejected the EC, but so what? That was not unexpected. As has been shown in numerous other BK cases, an initial rejection of the EC doesn't mean the end. The company itself has stated that it plans to return to profitability very soon, which by the way was a very interesting statement to make at the same time you are trying to say the company is hopelessly insolvent! That in and of itself makes this worth a shot at this price. But, as I said, this one is a real estate play for me. Several years ago I heard Jim Cramer telling everyone to buy Sears Holding, not because he thought they were going to do better in retail, but because they held a ton of valuable real estate that was worth more than the share price was indicating (note, I don't follow Cramer - I was following SHLD at the time). I believe the same holds true for ABWTQ, especially once (not if) cap and trade becomes a reality. Sure, this is one of the riskier ones I have played (which I believe is why none of the big players are touching the equity), but the upside is too large for me to not follow it through. As with all equities, know what you own and make sure it is within your risk tolerance...

Ummmm, post #20941 was a reply to my message and seemed to be a direct response to my post.
Not that it is your business, but my average is around 11.5. Used to be up in the 14-15 range but as I said before, I sold a bunch in the 50's and then bought back in this range. I plan to enjoy the rest of the ride of this real estate play on house money...

I have no issue with opposing views. You must be confusing me with someone else. My post wasn't about me, it was about you. Just wondering why you care?
As far as my being smarter than others, you seem to be the only one smarter than everyone else. I have never suggested or even hinted that I am smarter than anyone else, particularly those that have enough money to manipulate the market any way they choose. It is one thing to post an opinion about a stock (I have no problem with that), but I cannot see where you feel that you have the right to judge me or anyone else for that matter.
As far as my PERSONAL investment strategy, thanks for the sound advice. Since you have no idea of my resources or overall investment strategy, I would say that you should refrain from judging whether I am "delusional" (no, you didn't say it directly, but you definitely inferred it). Fact is that I have already recovered my initial investment in ABWTQ plus some, so I am on house money now...and it is a very small portion of my portfolio. We can argue about the merits of the company. You have your opinion and I have mine. I could have taken your same advice on GGWPQ, CEMJQ, and VSTNQ. Those "hundreds other private equity firms with resources financial, and professional hundred fold the combined IHubers" sure missed those. I am by no means claiming to be a genius. I am much more humble than you. I admittedly have missed on plenty of Q stocks as well. Fact is that some of these Q stocks will pan out and some won't. The idea is to have a portfolio of Q stocks that you feel have a better chance of surviving than do not and to make sure you take advantage of the runs and pullbacks when they come. Of course I do not need to tell someone as brilliant as yourself all of this because you already know it and have probably written many books about it.
I actually cannot believe I just wasted my time in replying, but couldn't help myself. Good luck to you...

Just to add a bit, my company which sells into essentially all chemical sectors is having its best quarter since early 2008. Demand is strong across the board and capacity utilization throughout the industry continues to rise (meaning increased margins). Most customers (cannot think of any exceptions but don't like to say "all") report tight inventory and continued improving business conditions. I would expect that you will see earnings improvement throughout the chemical industry and Chemtura will be no exception.

Just out of curiosity, if you are out then why are you still bothering to post here? Don't bother answering. It was really a rhetorical question. Your motives are obvious...

Ho hum. Just plugging away and continuing to improve. Extrapolating the EBITDA then taking a 5x multiple, this thing is worth $7/share ($3.50 with max dilution) and that doesn't even account for MOR's only covering the US operations. Feeling better and better. Let the games continue. They won't last much longer. The smart will take advantage of the opportunity.

Just a couple of points. From my meetings with some of their management it was very clear that a quick emergence was priority. They recognize that the bk process is very costly and damaging to their competitive position. They are not going to want a long dragged-out court battle. Remember, they only went into bk because of their inability to refinance their debt, not because they were overly leveraged like other companies. If not for the unavailability of credit they would very likely been able to refinance the debt (bond) due in 2009.
Second, this dilution is really not a big deal with respect to value of the shares. They are going to raise cash with the offering and pay off debt. It really has little impact (actually none by definition) on the shareholder's equity per share. Yes, it will have an impact on your discounted cashflow, but with less debt it is not a 1:1. In other words, a 50% dilution does not equate to a 50% reduction in the value of shares because you have less interest to pay every year. Plus, as was pointed out in another post, the valuation is on a 5-yr discounted cashflow statement. Rogerson himself stated that he wants to double the size of the company in 2-4 years (if I recall correctly). A lot of the "estimates" that I have seen on this board have essentially used current EBITDA as a valuation. Well, if the company doubles in 2-4 yrs our estimates are much too conservative. Of course it remains to be seen if they can achieve that stated goal...not many chemical companies can do that. If they do it will be a fun ride for sure! :) Just my two cents...FWIW