This morning, Univar announced earnings and that it was divesting Nexeo plastics. Let’s break down what the divestiture means for the stock and the warrants (Note: the company has not held its call yet, and plans to do in late Tuesday, so items here are subject to change).
First, how good of a price is the sale? Univar is acquiring Nexeo for ~$2BN and had plans to divest plastics. Plastics distribution is a low margin business, based on what management has said.
I am going to assume it generates between 3.5% and 4.0% margins. That implies 6.5% margins for the chemical segment, which is lower than Univar, but makes sense given Nexeo’s smaller scale.
That means the $640MM divestiture implies ~8.6x EBITDA (9.2x if I assume 3.5% margins, 8.1x if I assume 4.0%).
Second, what are the implications on the stock? If I subtract my estimate of Nexeo’s plastics EBITDA, I get PF EBITDA of $135MM. Univar is now (unfortunately, this is a big miss from $680MM of expectations from the street) guiding to flat EBITDA for 2019. Then I add in half the total expected synergies ($50MM). The good news is I get $32 stock price for Univar.
And the warrants? Well, if you think UNVR is worth $32 over the next 12 months, that implies $13.05 of “merger consideration” for Nexeo and a warrant value of at lest $0.78, not including any time value. That’s double where they trade as of 2/8/2019…