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In the get-rich quick (or at least “quicker”) world of institutional investing, firms often push companies toward actions that benefit the institutions most in the short term, including steps like cutting R&D, cutting capex, slashing headcount, leveraging the business to buy shares, and most recently, “de-conglomerating” businesses. In the particular case of Celanese (NYSE:CE), though, the idea of break-up has been in play for some time, as the Street hasn’t historically given full credit for the value of this highly-integrated industrial chemical company.
I’m ambivalent about a break-up. I believe a series of deals could reap about $130 to $135/share in total value for shareholders, with no ongoing operational risk (take your money and go home). On the other hand, continuing to run Celanese with the same basic operating approach would possibly generate greater long-term gains for patient shareholders who want to stick around.
What Could A Break-Up Look Like?
There’s pressure on Celanese to consider a break-up for some time, with some investors not liking the combination of the more cyclical and commodity-like acetyl chain business with the less-cyclical, somewhat higher margin, and more dynamic Engineered Materials business. While management has long signaled a willingness to consider value-enhancing transactions, those transactions have included not only break-up scenarios, but also M&A transactions that would build Celanese further.
According to an early October Bloomberg report, the company hired a strategic advisor to evaluate its options more thoroughly. At this point, it looks like a break-up scenario is the most likely outcome, though there are different shapes this could take and more than a few technical details that would have to be ironed out.
The best-case break-up scenario in my view would see multiple components. First, the company would
