OLN - Olin Corporation

[BG2008]

Olin is acquiring Down Chlorine Products group in a reverse morris trust transaction.  The thesis is simple here.  They combine the largest chlorine player with the 6th largest to create the largest that is about 2x the size of the second largest player post deal.  I've seen this story play out with Aercap acquiring AIG's aircraft leasing.  These types of transactions tend to be very beneficial for both players as the you take out a competitor and become the largest and lowest cost producer in one move. 

 

I know there are a couple chemical engineers on this board.  Can you guys share your thoughts on the Chlor Akali industry in general, what drives it, pricing power, market dynamics etc?  Someone mentioned that Chlorine is a national market as it's extremely difficult to transport.  Supposedly there is a oversupply of caustic soda and not chlorine.  Any thoughts?  Does the combination create a dominant player in the space?  Thoughts greatly appreciated. 

 

http://b2icontent.irpass.cc/1548%2F162742.pdf?AWSAccessKeyId=1Y51NDPSZK99KT3F8VG2&Expires=1442808514&Signature=ZMK5iekaTuMcR3oweMnAfzTKsIQ%3D

[Picasso]

Bump in case anyone is still researching this.  Looks interesting but would also like to hear any input on the Chlor Akali market.

[PullTheTrigger]

BG,

 

Your link appears to be bad. What was it linking to?

 

 

[PullTheTrigger]

Bump.

 

Anyone following Olin? Just curious if any experts in this industry. Olin is supposed to shut down about 6% of U.S. Chlor-akali capacity and supposedly we're at trough in the cycle. The acquisition of Dow's chlor-akali division is supposed to make Olin less cyclical.

 

Many insider purchases in last several months.

Director 50,000 at 19.92 last November

Director 50,000 at 19.50 last November

Plus another 7 insider buys in November

 

and then in February:

Director 70,000 shares at 14.26

Ex VP 20,000 at 12.90

Director 15,000 at 12.54

Director 8,000 at 12.64

 

Baupost owns some.

 

 

[klmehta03]

Allot of Chlorine plants have build excess capacity to convert chlorine into Hydrochloric acid (HCl) (chemical  used allot for fracking process)... Olin now being a dominant player will have shutdown some plants to get rid of the excess capacity as the price for crude oil and hence HCl and Caustic plummeting...

 

Chlorine is used allot in water treatment facilities in southern US... Prices will rise due to demand if we have warmer summers...

 

But for now allot of new projects are on HOLD due to demand supply dynamics....

[PullTheTrigger]

Not much chlorine is used for water treatment:

 

Q: What are the main uses of chlorine produced in the United States?

A: Approximately 40 percent of chlorine produced in the United States is used to make polyvinyl chloride (PVC or vinyl)—a versatile plastic found in such diverse products as prosthetic limbs and energy-saving windows. Another 37 percent of chlorine produced in North America is used to produce basic organic chemicals needed for manufacturing, and solvents for metalworking, dry cleaning, and electronics. Other large uses of chlorine include producing hydrochloric acid for myriad chemical processes and titanium dioxide, a popular white pigment.

 

Comparatively small amounts of chlorine are used for significant impact. For example, roughly four percent of North American chlorine is used for water treatment—a pervasive use that helps protect the public from serious waterborne diseases like cholera and typhoid fever. Similarly, a very small percentage of chlorine produced is used to help manufacture over 93 percent of pharmaceuticals sold in the U.S. These include medicines that help patients manage heart and respiratory disease, ulcers, anemia and depression.

 

https://chlorine.americanchemistry.com/FAQs/Chlorine-Production

 

[Stuart D]

Anyone still following Olin?

 

New VIC writeup (credit: spike945) covering updated risks/rewards: https://valueinvestorsclub.com/idea/OLIN_CORP/2283606457

 

To summarize...

 

Upside:

- Management are projecting EBITDA to double by 2023.

 

Risks:

- Leverage.

- Recession.

 

 

Also, management seem to do a good job of buying low and selling high. They are usually buying at prices <$20 and selling at or above $25.

 

Current price is $18.29.

 

https://www.insider-monitor.com/trading/cik74303.html

 

^This chart nicely lays out insider buying/selling activity over 10+ years for those who are interested.

[Spekulatius]

Olin seems cheap. One concern I have is that  PVC gets more and more replaced with other Polymers - that are more environmentally friendly and safer (PVC releases Chlorine when burning). PVC is often used in construction, because it is weather resistant and doesn’t burn easily, and relatively cheap, but when it burns the release of toxic chlorine in a fire is a major issue.

 

I don’t think above negates the thesis,  it I think one should consider this business a slowly melting ice cube.

[longterminvestor]

OLN is trading at $1.671B Market Cap ($10.60/share with 157.7MM shares outstanding).  BV as of 12/31/19 was $2.417B.  That is roughly 0.7X BV.  Seems attractive at these levels.