Tag: Univar

Columns, Security Analysis

The deal is sealed… what’s next for the securities? $UNVR $NXEO $NXEOW
Reading Time: 2 minutes

Several pieces of news for the Univar and Nexeo… and the warrants.

  • First, the acquisition closed on the 27th. Because Univar closed above ~$22/share, there is no reduction in the exercise price of the warrants
  • Second, there is now more certainty of what the “Merger Consideration” is. We now know that each share of Nexeo will receive $3.02/share (a reduction of $0.27/share). The equity portion is still 0.305 of Univar shares.
    • For the warrants, since each warrant is good for ½ share, this amounts to $1.51 in cash and 0.1525 shares of Univar.  
  • Last, the stock and warrants are delisted from the NASDAQ, which was disclosed previously.

Because there are now less moving pieces, we can clearly arrive at a price target for the warrants. Based on my previous posts, you know that my price target for Univar is ~$32/share in the next 12 months. I think I am being reasonable in this analysis (though I admit, Univar is hosting its 2019 outlook call next week which could change things).

(March 4 Update: UNVR released 2019 guide of ~$750MM of EBITDA, which reflect 10 months of Nexeo and expectations of flat industrial demand. Seems relatively conservative. They also expect to generate $275MM of FCF, which is still a 7% FCF yield. Not too bad, but not amazing either).

It appears that Seth Klarman of Baupost agrees with me as he recently took a big stake in both Univar and Nexeo warrants. Looks like he owns 10MM warrants, or roughly 20% of the outstanding amount. He also owns 9.5MM shares of Univar.

But for now, I will provide this table below to help you decipher what you think the warrants are worth. We can’t forget, however, that we still have 830 days until expiry… As I stated in my article here, if we used Black Sholes to price these warrants, they would be trading much higher just from time value. (Alas, even Buffett has written about the mis-pricing of long-dated options)

What do we do now that the warrants are delisted?

Univar appointed Equiniti as the successor warrant agent pursuant to the Nexeo Warrant Agreement.  This means they will now handle the warrants being exercised. Unfortunately, in the meantime, this means the warrants will be pretty illiquid.  

I will update this post once Equiniti responds.

Update: Equiniti never responded, but the warrants trade regularly now.

Security Analysis

Univar to divest Nexeo Plastics; provides updated 2019 guidance. What it means for the stock / warrants $UNVR $NXEO $NXEOW

Reading Time: 2 minutesThis morning, Univar announced earnings and that it was divesting Nexeo plastics. Let’s break down what the divestiture means for Univar stock and the nexeo 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%).

NXEO Segments.PNG

Second, what are the implications on Univar 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 Univar stock price.

New Nexeo EBITDA

And the warrants? Well, if you think Univar stock 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…