WestRock Set To Spin Off Ingevity on May 15th, After Delays

After delaying the spinoff of its chemical business due to ‘complexities’, WestRock (WRK) is finally ready to complete the spinoff of Ingevity. The transaction is expected to be completed on May 15th, with WestRock shareholders receiving 1 share of the Ingevity for every 6 WestRock shares owned. The new company will trade on the NYSE under the ticker ‘NGVT’. A ‘When-Issued’ market is expected to be in place beginning on May 2nd for those so inclined to trade the individual names prior to the spin.

Ingevity recently filled out its board of directors, which will be led by Richard Kelson, a former Alcoa exec and current CEO of ServCo. The rest of the slate is mostly filled with experienced execs from similar industries and of course, Ingevity’s CEO and President Michael Wilson will also serve as a member. He believes “our newly appointed board is comprised of senior executives with diverse functional strengths and outstanding leadership experience in specialty chemicals and industrial markets’ and is ‘looking forward to working with this distinguished group to establish Ingevity as a leader in specialty chemicals and high-performance carbon materials and technologies.’

This spin has been years in the making with Starboard Capital’s Jeffrey Smith presenting the idea (then about MeadWestvaco) back in 2014 at CNBC’s Delivering Alpha conference. [Starboard has since moved on to bigger companies, but it still owns ~1.8% of WestRock.] In the meantime the underlying fundamentals of the business have become more challenged as the bulk of its sales (over 70%) go to the oilfield. Further weighing on the company is that it will issue over $500m in long term debt, with the bulk of the proceeds being sent over to its parent, WestRock. Granted the debt is cheap, but perhaps it could have used that capital structure flexibility for other purposes. It’s also worth noting that one of the risks highlighted in the Form 10 is the company’s reliance on CTO, a byproduct of the kraft pulping process, as a raw material for its largest segment. Ingevity has entered into a long-term supply agreement with WestRock for most of its CTO, but given the fact that CTO is a byproduct, there is risk that weakness in its parent’s market leads to tightened supply in its market.

After being asked if the spinoff still made sense during its most recent call, management noted that it still believes a separation is the best way forward for both companies. Time will tell if that is true or not and the market will finally have its chance to weigh in beginning on May 16th.

Disclosure: Author holds no position in any stock mentioned.