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Company: OCI NV (OCI-NL)
Stock value: ~€6.3 billion (€29.93 per share), according to FactSet
Activist: Inclusive Capital Partners
Percentage of Ownership: ~5.0%
average cost: not applicable
Activist comment: Inclusive Capital Partners is a San Francisco-based investment firm that works with corporations that enable solutions to environmental and social issues. Founded in 2020 by Jeff Ubben, who previously founded ValueAct Capital in 2000, Inclusive seeks to leverage capitalism and governance in the pursuit of a healthy planet and the health of its people while creating long-term shareholder value. As a pioneering activist ESG (“AESG”) investor, Inclusive seeks long-term shareholder value through lively partnerships with corporations whose core businesses provide solutions to this quest. The corporate is primarily focused on creating environmental and social value, which leads to shareholder value creation.
What is going on on?
Inclusive sent a letter to Nassef Sawiris, OCI’s executive chairman, expressing the company’s belief that OCI is value roughly 90% greater than its current share price and urging the board to explore strategic options to unlock the company’s value.
Behind the scenes
Most of OCI’s business is in agricultural fertilizers and other nitrogen products, with roughly 12% of revenues generated by methanol fuel products. This company has $9.7 billion in revenue and $3.6 billion in profit before interest, taxes, depreciation and amortization. Nevertheless, likelihood is what the future holds.
OCI is currently embarking on a $1 billion expansion of the largest blue ammonia plant in the United States, positioned in Beaumont, Texas. It should be a state-of-the-art plant at the forefront of blue ammonia production, scheduled to be operational in 2025 and producing 1.1 million tonnes of blue ammonia per yr. This object will mix nitrogen with blue hydrogen to form blue ammonia. It is taken into account “blue” ammonia because the carbon emissions from the hydrogen production process are captured and stored. Blue ammonia has many applications in OCI’s existing product lines as a sustainable and low carbon input to fertilizers, fuels and feeds. Furthermore, the liquefied blue ammonia can be sold domestically or shipped to OCI’s Port of Rotterdam Ammonia Import Terminal as they see European hydrogen and ammonia demand as a significant growth area driven by energy transition and decarbonisation.
Due to the recently passed Inflation Reduction Act in the US and carbon taxes in Europe, there are several financial advantages to producing blue ammonia. First, the IRA increased the tax credit for every ton of coal stored to $85 a ton, up from $50. OCI’s plan is to produce 1.1 million tons of ammonia, which generates 1.7 million tons of carbon, virtually all of which is captured and stored. Second, this blue ammonia shall be sold through an ammonia terminal in the Port of Rotterdam, owned and operated by OCI. Since it is a low-carbon fuel, it’s going to not be subject to the $100-per-tonne carbon tax on competing products, allowing OCI to sell at market price and earn an extra $100-per-tonne margin. This is predicted to lead to $350 million in annual EBITDA from the required $1 billion in capex. As well as, ammonia is simpler to transport than hydrogen because it can be transported at -33°C compared to -253°C for hydrogen. For these reasons, blue ammonia could function a crucial source of decarbonized hydrogen, may very well be a big a part of future green energy, and has some secular winds.
Inclusive believes that OCI’s methanol business, coupled with the Beaumont low-carbon ammonia project, has significant strategic value and could attract interest from major energy players looking to speed up their energy transition. Inclusive cited BP’s acquisition of biogas producer Archaea Energy for as a reference $4.1 billion (29x EV/22 EBITDA) w December 2022; Acquisition by Chevron Renewable Energy Group for $3.1 billion IN June 2022; and Shell’s acquisition of Nature Energy Biogas for $2 billion announced last November and finished in February. As well as, Inclusive recognized that OCI’s Iowa Fertilizer Company’s state-of-the-art, strategically positioned plant could be of great value to fertilizer-only fertilizer corporations corresponding to Nutrien in search of nitrogen production in the U.S. corn belt. Moreover, Inclusive noted that Fertiglobe’s successful IPO showed value in OCI’s portfolio, with OCI’s stake in Fertiglobe being value nearly its entire market capitalization last yr. It must be noted that Inclusive’s Jeff Ubben sits on the board of Fertiglobe together with Nassef Sawiris, OCI’s executive chairman.
Ubben has all the time liked corporations he felt were misunderstood by the market, and Inclusive all the time has a component of influence as its underlying investment thesis. On this case, investment outlays in the raw materials industry are generally perceived negatively by investors. But for all the reasons mentioned above, it can be very positive not just for OCI shareholders, but in addition for the environment.
Ken Squire is the founder and president of 13D Monitor, an institutional research service dedicated to shareholder activism, and the founder and portfolio manager of 13D Activist Fund, a mutual fund for 13D activist investments.