Starboard Gets Its Specialty Chemical Spinoff At MeadWestvaco

Some activist funds like to work behind the scenes and then there are the others which seem to be in the news almost every day. A day after making waves at Yahoo (YHOO), Jeffrey Smith’s Starboard Value fund was back in the news after long time target MeadWestvaco (MWV) announced plans to spin off its specialty chemical business later this year. The fund did not like the lack of synergy between the two businesses and thought they would be better off and better valued independently.

The spinoff will create an industry leading packaging & packaging solutions company and a specialty chemicals business:

MWV Packaging

Following the separation, MWV will be in an excellent position to accelerate its strategy as a global leader in packaging and packaging solutions, optimally positioned to create long-term value through its market-focused strategy. Through this strategy, the company has improved its growth and profitability profile by enhancing its product mix and focusing on the most attractive opportunities in growing global packaging markets while reducing structural costs.

In conjunction with the separation of the Specialty Chemicals business, MWV is undertaking a comprehensive organization redesign to accelerate its market-focused packaging strategy and achieve market-leading margins. The actions will ensure the company has the capabilities to execute on its profitable growth strategy with an appropriately sized support structure and business model that will provide attractive total returns to shareholders.

MWV Specialty Chemicals

The Specialty Chemicals business will be well positioned to accelerate profitable growth in its megatrend aligned markets of energy, infrastructure and transportation. The business is a leading provider of performance chemicals used in printing inks, asphalt paving and adhesives, as well as in the agricultural, paper and petroleum industries. The business also produces activated carbon products used in gas vapor emission control systems for automobiles and trucks, as well as applications for air, water and food purification.

The Specialty Chemicals business will have greater ability to grow and expand its leadership positions in attractive global markets. The business is expected to extend its ‘best-in-class’ financial performance record with the appropriate capital structure to allow the new company to accelerate the pursuit of attractive profitable growth opportunities. As a stand-alone chemicals company with a strong margin profile, Specialty Chemical will continue to be a leader among its peers.

The company plans to use any cash from the spinoff (perhaps via dividend?) to pay down debt. A spinoff isn’t a guarantee though as the company did note that it is open to other means of disposing of the business, such as a sale, but a spin may be preferable for tax purposes. The company showed it’s sensitive to tax payments back in 2012, when it structured its consumer & office products business spinoff as a Reverse Morris Trust. That unit was merged into Acco Brands (ACCO).

Starboard, which had been making the case for a specialty chemical spinoff for some time now, recently upped its stake in the company to 6.1%. The spinoff should only be the first step though according to the fund, which also has some additional ideas to increase the company’s value such as cutting SG&A and improving operating margins. The stock jumped over 5% on the news, but still closed well below the $59 per share Mr. Smith said the company could be worth at last year’s Delivering Alpha conference. Sure seems like someone still has a lot of work to do…

Disclosure: Author holds no position in any stock mentioned.