IPO Preview: Taminco

| About: Taminco Corporation (TAM)

Based in Allentown, PA , Taminco (NYSE:TAM) scheduled a $300 million IPO with a market capitalization of $1.24 billion at a price range mid-point of $19, for Thursday, April 18, 2013.

Seven IPOs were scheduled for the week of April 15th. The full IPO Calender is here.

S-1 filed April 5, 2013

Manager, Joint Managers: Citigroup/ Goldman, Sachs/ Credit Suisse/ J.P. Morgan/ Deutsche Bank Securities/ Jefferies/ Morgan Stanley/ UBS Investment Bank

Co Managers: C&Co/PrinceRidge/ ING/ KBC Securities USA/ Lebenthal Capital Markets/ Rabobank International/ SMBC Nikko/ Apollo Global Securities

TAM is world's largest pure play producer of alkylamines and alkylamine derivatives. It was acquired by Apollo Mgt (private equity) in December 2011.

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2012 vs 2011 financial comparisons are unfavorable. TAM's growth plan is heavily depending on worldwide economic growth. There are other ways to play potential worldwide economic growth.

There's no reason to chase after TAM and rescue Apollo. Therefore it seems prudent to pass on the TAM IPO.

At December 31, 2012, TAM had $1,161 million of total indebtedness outstanding on a consolidated basis, all of which was secured. TAM's debt agreements contain restrictions that limit TAM's flexibility in operating our business, which may lead to default under debt agreements.

Post-IPO TAM will have a negative tangible net worth of -$507 million.

TAM is the world's largest pure play producer of alkylamines and alkylamine derivatives according to the ADL (Arthur D. Little) Report.

TAM's products are used by customers in the manufacturing of everyday products primarily for the agriculture, water treatment, personal & home care, animal nutrition and oil & gas end-markets.

TAM's products provide a variety of ancillary characteristics required for optimal performance, such as neutralizing acidity, and removing contaminants.

TAM has an extensive offering of differentiated value-added products that typically represent a small portion of customers' overall costs and are sold into diversified, global end-markets that benefit from favorable underlying economic and population growth trends.

TAM currently operates in 19 countries with seven production facilities and, as of December 31, 2012, had an installed production capacity of 1,272 kt.

According to the ADL Report, TAM holds the #1 or #2 market position globally in the vast majority of the chemicals produced, including a 50% and 75% share of certain products in North America and Europe.

During the pro forma year ended December 31, 2012, eight of TAM's products accounted for more than 57% of revenue, with six of the eight products holding a leading global market position.

During the pro forma year ended December 31, 2012, through TAM's worldwide network of production facilities, TAM sold 48% of its volume in North America, 36% of its volume in Europe, and 16% of its volume in the emerging markets (7% in Latin America and 9% in Asia).

TAM currently operates seven plants worldwide dedicated to the production of alkylamines and alkylamine derivatives, including two larger facilities in each of the United States and Europe that are among the world's largest methylamine and higher alkylamines production facilities, a joint-venture facility with the MGC Group in China, and two other 100% Taminco owned facilities in China.

The main raw materials by volume used in the manufacture of alkylamines and their derivatives are methanol, ammonia, ethylene oxide and acetone.

Some of TAM's current contracts allow TAM to purchase raw materials at advantageous prices.

While 48% of TAM's contracts for the pro forma year ended December 31, 2012 permit pass-throughs of key raw material increases, TAM has generally been able to pass along increases, subject to a time lag, in other sales.

Alkylamines are organic compounds produced through the reaction of an alcohol with ammonia. The largest alkylamine product category by volume consists of methylamines, where the alcohol used is methanol.

Higher alkylamines are produced when alcohols containing chains of two or more carbon atoms are used instead of methanol. International and regional competition in the alkylamine industry can be affected by the cost and logistical difficulties involved in the shipping of alkylamine building blocks. Alkylamine derivatives production tends to be regional to minimize shipping costs.

As a result of these factors, production in the industry is generally regional.

Over the past decade, producers in the alkylamine industry that compete in TAM's geographies have consolidated significantly. Key consolidation events include Air Products's UK closure of a 50 kt production line in 2004, Chinook Canada's closure of a 68 kt production line in 2004 and sale of contracts to DuPont, TAM's purchase of Air Products's North American and Latin American amines business in 2006, Akzo Nobel's Netherlands closure of a 22 kt production line in 2006 and sale of contracts to TAM and Balchem's purchase of Akzo Nobel's 18 kt Italian operations in 2007.

TAM's vertically integrated business model is one of its key strengths, differentiating TAM from almost all of competitors, according to TAM.

TAM recently succeeded with this model in Europe, and recently completed a vertically integrated production model in the United States, which TAM believes ideally positions it to capture growth in several attractive end-markets, including oil & gas (driven by shale gas demand), water treatment, feed additives, and crop protection.

In addition, as a result of a competitive cost position, recent capacity additions at United States-based plants and TAM's Latin America-based sales force, TAM believes it is well positioned to fully serve the Latin American market, which has limited local competition. On a relative basis, TAM does not believe its peers have this competitive advantage.

The largest alkylamine building block product by volume is methylamines, followed by higher alkylamines.

TAM believes consumption of methylamines accounted for 74% of global consumption of alkylamines by volume and that higher alkylamines made up the remainder of global consumption.

The four producers of methylamines in North America are Taminco, DuPont, BASF and Celanese Mexicana, with Taminco having the largest share of production capacity at 50% in 2012 and DuPont having the next largest share.

The two producers of higher alkylamines in North America are Taminco and U.S. Amines, with Taminco's share of production capacity at 75% in 2011. The European methylamine producers are Taminco (Belgium and Germany), BASF (Germany), Balchem (Italy), Ak-Kim Kimia (Turkey) and CEPSA (Spain), with Taminco having the largest share of European production capacity at about 49% and BASF having the majority of the remaining capacity share.

In Asia, the significant methylamine producers include Zheijiang Jiangshu, Shandong Huala Hengsheng, Luxi Chemical Corp. and Taminco, with Taminco's share representing 4% of Asian production capacity in 2012.

TAM had 830 employees as of December 31, 2012 through various subsidiaries. 35% employees are covered by collective bargaining agreements with subsidiaries.

Most of the employees covered by collective bargaining agreements are located in Belgium. Collective bargaining agreements with employees in Belgium expired on December 31, 2012. As soon as the government concludes an inter-professional agreement, TAM expects to start discussions with its employees. TAM does not expect any issues to arise in connection with the renewal of such agreements.

No dividends expected.

On December 15, 2011, Taminco Group Holdings S.à r.l. and Taminco US Inc. (formerly Taminco Inc.) entered into an Agreement for the Sale of the Share Capital of Taminco Group Holdings S.à r.l. and Taminco US Inc. (formerly Taminco Inc.) (the "Share Purchase Agreement") with Taminco Global Chemical Corporation, which is an entity controlled by certain private equity funds affiliated with Apollo Global Management LLC

Apollo Funds, 95%

TAM expects to net $282 million from its IPO. Proceeds are allocated to repay debt and to pay Apollo a $35 million fee for termination of a consulting agreement.

Disclaimer: This TAM IPO report is based on a reading and analysis of TAM's S-1 filing which can be found here and a separate, independent analysis by IPOdesktop.com. There are no unattributed direct quotes in this article.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.