In accordance with an agreement with Element Solutions Inc. (ESI, Financial), Pershing Square Capital Management leader Bill Ackman (Trades, Portfolio) disclosed on Feb. 4 he exited his stake in the company.
The Florida-based company, which changed its name from Platform Specialty Products Corp. (PAH) following the completion of the sale of its agricultural solutions business in January, manufactures specialty chemicals for a number of markets, including automotive, telecommunications, consumer goods, energy and water treatment. It began trading under a new ticker on Feb. 1.
According to a press release, the specialty chemicals company repurchased 37 million shares from the New York-based activist hedge fund for $11.72 per share. The position, which accounted for roughly 13% of Element Solutions’ outstanding shares, represented 9.68% of Pershing Square’s equity portfolio as of the end of the third quarter.
In a statement, Element Solutions Executive Chairman Martin Franklin noted the deal was part of a larger short-term initiative to take advantage of its financial capacity to “repurchase shares in an opportunistic manner for the benefit of all shareholders.”
“We believe this opportunistic repurchase is by far the most efficient and earnings accretive approach for our remaining shareholders, all while keeping our leverage ratio below our stated goal of 3.5x net debt to adjusted EBITDA,” he said. “This buyback utilizes approximately 58% of our previously approved buyback program, and we will continue to look at opportunities to return capital to shareholders over the balance of the year, while remaining committed to our disciplined leverage goals.”
Ackman established the initial holding in Platform Specialty in the first quarter of 2014, buying 33.3 million shares for an average price of $17.60 per share.
Also as part of the agreement, Ryan Israel, a partner at Pershing Square, resigned from Element Solutions’ board of directors, which he has been a member of since 2013.
In a statement, Ackman said he wishes the company success in the future.
“We are exiting our investment in Element Solutions knowing well that the business is strong and the stock price is cheap,” he said. “Were it not for a repositioning of our portfolio to larger capitalization activist situations, we would have remained a long-term shareholder.”
Franklin also thanked Ackman and Israel for their contributions to the company over the last five years, saying they have been “great supporters.”
Valuation and financial position
Element Solutions has a $3.34 billion market cap; its shares were trading around $11.59 on Wednesday with a price-earnings ratio of 12.45, a price-book ratio of 1.63 and a price-sales ratio of 0.96.
According to the median price-sales chart, the stock is trading slightly below its historical value.
GuruFocus rated Element Solutions’ financial strength 4 out of 10. As a result of issuing approximately $1.5 billion in new long-term debt over the last three years, the company has poor interest coverage and an extremely low Altman Z-Score of 0.71, which warns the company is at risk of going bankrupt.
The company’s profitability and growth scored a 5 out of 10 rating. While the operating margin outperforms 60% of competitors, Element Solutions’ returns are negative and underperform a majority of industry peers. The Piotroski F-Score of 4, however, indicates the company’s operations are stable.
Guru shareholders
Of the remaining gurus invested in Element Solutions, Larry Robbins (Trades, Portfolio) now has the largest stake with 4.35% of outstanding shares. Paul Singer (Trades, Portfolio), David Tepper (Trades, Portfolio), Chuck Royce (Trades, Portfolio), Murray Stahl (Trades, Portfolio), Mario Gabelli (Trades, Portfolio) and Joel Greenblatt (Trades, Portfolio) are also shareholders.
Disclosure: No positions.
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