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Barry Cohen
Barry Cohen
Articles (276) 

W.R. Grace May Be Headed Into the Arms of 40 North

The largest shareholder has made a bid of $65 a share for the chemicals and materials producer

March 02, 2021 | About:

Shares of W.R. Grace & Company (NYSE:GRA) have been anything but amazing during the past five years, dropping about 20%. However, the stock has surged lately, climbing from its 52-week low of $26.75 to more than $60.65.

The stock is headed north and so might the company be. The recent ascent seems to be tied to Grace's potential sale to 40 North, which owns nearly 15% of Grace's shares. 40 North, a company related to New York's Standard Industries, offered to buy Grace for $60 a share in November. The Columbia, Maryland-based producer of specialty chemicals and materials worldwide said no way to that proposal, telling 40 North to dig deeper into its pockets.

40 North took that advice and upped its offer to $65 a share, a figure Grace appears to be mulling over. It is also looking at other options, said CEO Hudson La Force, though he cannot discuss the specifics of any other potential deals, stating that there is no guarantee any transaction will happen.

The Baltimore Business Journal reported that John Roberts, an analyst for UBS Equity Research, said one of the options for Grace could involves splitting off its "materials technologies" business, which makes specialty materials that can be used in pharmaceutical and consumer products, wood and other architectural coatings, and industrial chemical processes. La Force seemed to oppose that move, emphasizing that the materials division is a highly integrated piece of Grace's portfolio.

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Grace was on the other end of an acquisition recently, signing a definitive agreement to purchase the Fine Chemistry Services business of Albemarle Corp. (NYSE:ALB) for about $570 million, including $300 million paid in cash at closing and $270 million funded through the issuance to Albemarle of non-participating preferred equity of a newly created Grace subsidiary.

The acquisition substantially beefs up, strengthens and expands Grace's current pharma offerings, the company said in a news release. Pharma & Consumer is the largest, fastest-growing and most profitable subsegment within Grace's Materials Technologies business.

"This acquisition is strategically and financially compelling and aligns perfectly with our strategy of building a higher growth portfolio by extending our existing capabilities into higher-growth, high-value end markets," La Force said.

The deal is expected to be accretive to Grace's revenue growth rate, Ebitda margin and adjusted earnings per share in 2021. The acquisition adds approximately $60 million in full-year run-rate Ebitda in 2021, with Ebitda margins of over 35%.

Grace said it had a "nice" fourth quarter, topping Wall Street estimates for earnings and revenue. The company reported adjusted earnings per share of 88 cents, compared to a projection of 86 cents per share from analysts polled by the Thomson Financial Network. Sales in the fourth quarter were $470.2 million, down 6.8% from the year-ago period but better than the $467.9 million projected by analysts.

For the full year, Grace's sales were down 11.7% to $1.73 billion. Earnings per share fell 39.7% to $2.64.

La Force said the full-year results were impacted by the pandemic, adding that the company enters the new year with momentum after closing out 2020 with its strongest quarter.

In 2021, Grace expects sales growth of 7% to 11% thanks to a strong recovery in demand, especially in the second half of the year. Adjusted earnings per share are expected to increase between 38% and 49% to between $3.63 and $3.93.

CNN Money reported that the 12 analysts offering 12-month price forecasts for Grace have a median target of $69.50, with a high estimate of $75 and a low estimate of $65. The stock is rated a buy.

Disclosure: The author has no positions in any of the stocks mentioned in this article.

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About the author:

Barry Cohen
Barry Cohen has nearly 40 years experience in communications and marketing, the majority in senior positions at large international health care companies, including Abbott Laboratories and Bayer Inc.

He has contributed to a number of financial websites, writing primarily about the stocks of health care companies.

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