The stock is currently trading in the mid-$40s; however, Jana recently came out and noted that Rockwood could actually be worth close to $80 per share in a takeover. This is over 20% from current trading levels. Jana has a 3.5% stake in Rockwood (NYSE:ROC).
The company plans to concentrate its business operations in lithium and surface treatments. In a recent letter, Rosenstein noted:
"We believe a Rockwood made up of lithium and surface treatments could make a very attractive takeover candidate for large multinational chemical names."
Back in February, Bloomberg reported back that Rockwood is considering the sale of a ceramic-materials unit that generates $550 million in annual revenue.
Back in February, Rockwood CEO, Seifi Ghasemi, noted that the company had hired Lazard to help explore options for three of its five units. The three units it is looking to sell include its additives unit, titanium-dioxide operations and a German ceramics business.
Just last month, Reuters noted that Rockwood was in talks to sell its additives and titanium-dioxide business together for more than $2 billion (6.7x EBITDA). Potential bidders include Bain Capital, Permira, Blackstone and EQT Corporation.
Rockwood trades with a 13.7 times P/E ratio, which is well below some of the major chemical companies.
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What’s more is that Rockwood has an impressive return on equity and return on assets.
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Another positive surrounding Rockwood is the fact that its balance sheet has been improving thanks to increased earnings and higher free cash flow. The company's debt ratio was down to 67.8% at the end of 2012, versus 78% at the end of 2008.
Rockwood has presented itself as a special situation turnaround story, which could move higher on the back of a secular demand rise for lithium. Not only that but the stock is cheap, and a potential buyout (at Jana’s price target) would present 25% upside.