Tronox: Accelerating Shareholder Value December 2011 Page 1
Disclaimer THIS PRESENTATION WITH RESPECT TO TRONOX INCORPORATED ( � TRONOX � , � TROX � OR THE � COMPANY � ) IS FOR GENERAL INFORMATIONAL PURPOSES ONLY. IT DOES NOT HAVE REGARD TO THE SPECIFIC INVESTMENT OBJECTIVE, FINANCIAL SITUATION, SUITABILITY OR PARTICULAR NEED OF ANY SPECIFIC PERSON WHO MAY RECEIVE THIS PRESENTATION, AND SHOULD NOT BE TAKEN AS ADVICE ON THE MERITS OF ANY INVESTMENT DECISION. THE VIEWS EXPRESSED HEREIN REPRESENT THE OPINIONS OF SANDELL ASSET MANAGEMENT CORP. ( � SAMC � ), AND ARE BASED ON PUBLICLY AVAILABLE INFORMATION AND SAMC ANALYSES. CERTAIN FINANCIAL INFORMATION AND DATA USED HEREIN HAVE BEEN DERIVED OR OBTAINED FROM FILINGS MADE WITH THE SEC BY THE COMPANY OR OTHER COMPANIES CONSIDERED COMPARABLE, AND FROM OTHER THIRD PARTY REPORTS. SAMC HAS NOT SOUGHT OR OBTAINED CONSENT FROM ANY THIRD PARTY TO USE ANY STATEMENTS OR INFORMATION INDICATED HEREIN AS HAVING BEEN OBTAINED OR DERIVED FROM A THIRD PARTY. ANY SUCH STATEMENTS OR INFORMATION SHOULD NOT BE VIEWED AS INDICATING THE SUPPORT OF SUCH THIRD PARTY FOR THE VIEWS EXPRESSED HEREIN. NO REPRESENTATION OR WARRANTY IS MADE THAT DATA OR INFORMATION, WHETHER DERIVED OR OBTAINED FROM FILINGS MADE WITH THE SEC OR FROM ANY THIRD PARTY, ARE ACCURATE. SAMC SHALL NOT BE RESPONSIBLE OR HAVE ANY LIABILITY FOR ANY MISINFORMATION CONTAINED IN ANY SEC FILING OR THIRD PARTY REPORT. THERE IS NO ASSURANCE OR GUARANTEE WITH RESPECT TO THE PRICES AT WHICH ANY SECURITIES OF THE COMPANY WILL TRADE, AND SUCH SECURITIES MAY NOT TRADE AT PRICES THAT MAY BE IMPLIED HEREIN. THE ESTIMATES, PROJECTIONS, PRO FORMA INFORMATION AND POTENTIAL IMPACT OF SAMC � S ACTION PLAN SET FORTH HEREIN ARE BASED ON ASSUMPTIONS THAT SAMC BELIEVES TO BE REASONABLE, BUT THERE CAN BE NO ASSURANCE OR GUARANTEE THAT ACTUAL RESULTS OR PERFORMANCE OF THE COMPANY WILL NOT DIFFER, AND SUCH DIFFERENCES MAY BE MATERIAL. THIS PRESENTATION DOES NOT RECOMMEND THE PURCHASE OR SALE OF ANY SECURITY. SAMC RESERVES THE RIGHT TO CHANGE ANY OF ITS OPINIONS EXPRESSED HEREIN AT ANY TIME AS IT DEEMS APPROPRIATE. SAMC DISCLAIMS ANY OBLIGATION TO UPDATE THE INFORMATION CONTAINED HEREIN. UNDER NO CIRCUMSTANCES IS THIS PRESENTATION TO BE USED OR CONSIDERED AS AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITY. PRIVATE INVESTMENT FUNDS ADVISED BY SAMC CURRENTLY HOLD SHARES OF COMMON STOCK REPRESENTING AGGREGATE OWNERSHIP OF APPROXIMATELY 1.8% OF THE OUTSTANDING COMMON STOCK OF THE COMPANY. SAMC MANAGES INVESTMENT FUNDS THAT ARE IN THE BUSINESS OF TRADING � BUYING AND SELLING � PUBLIC SECURITIES. IT IS POSSIBLE THAT THERE WILL BE DEVELOPMENTS IN THE FUTURE THAT CAUSE SAMC AND/OR ONE OR MORE OF THE INVESTMENT FUNDS IT MANAGES, FROM TIME TO TIME (IN OPEN MARKET OR PRIVATELY NEGOTIATED TRANSACTIONS OR OTHERWISE), TO SELL ALL OR A PORTION OF THEIR SHARES (INCLUDING VIA SHORT SALES), BUY ADDITIONAL SHARES OR TRADE IN OPTIONS, PUTS, CALLS OR OTHER DERIVATIVE INSTRUMENTS RELATING TO SUCH SHARES. SAMC AND SUCH INVESTMENT FUNDS ALSO RESERVE THE RIGHT TO TAKE ANY ACTIONS WITH RESPECT TO THEIR INVESTMENTS IN THE COMPANY AS THEY MAY DEEM APPROPRIATE, INCLUDING, BUT NOT LIMITED TO, COMMUNICATING WITH MANAGEMENT OF THE COMPANY, THE BOARD OF DIRECTORS OF THE COMPANY AND OTHER INVESTORS AND THIRD PARTIES, AND CONDUCTING A PROXY SOLICITATION WITH RESPECT TO THE ELECTION OF PERSONS TO THE BOARD OF DIRECTORS OF THE COMPANY. Page 2
Executive Summary � SAMC has been a large shareholder of TROX since prior to Chapter 11 emergence � We believe that TROX is significantly undervalued and management should be more aggressive in accelerating the realization of several catalysts that will improve valuation � These catalysts include: � Optimize pro forma balance sheet � Relist on the NYSE � Significantly increase research analyst coverage � Improve liquidity via stock split � Complete the Exxaro deal We believe the realization of these catalysts will yield a valuation of $183 � $194/share, representing 56% � 66% upside from current levels Page 3
Optimize Pro Forma Balance Sheet � TROX explicitly made comments regarding its � conservative � pro forma capital structure with significant � financial flexibility � � that would indicate to us the company � s pro forma balance sheet is not being optimized � No incremental debt incurred in acquisition � � (TROX presentation � slide 15, 10/6/11) � � Future cash flow from operations expected to be sufficient to pay cash portion of merger consideration ($12.50 per share or ~$190 million in aggregate) � (TROX presentation � slide 15, 10/6/11) � TROX cites that significant free cash flow will be generated with a potential dividend policy consistent with its peers, but only an � opportunity � to return additional cash to shareholders or to make potential high-return investments � We � � ve announced that we intend to issue dividends that are consistent with the industry peers. But with this level of free cash flow generation, there will also be opportunities for return of additional cash above and beyond the dividend to shareholders, and we will be exploring those alternatives. � (TROX conference call � 10/10/11) � We believe management must now be more aggressive in closing the significant gap between the current stock price and fundamental value � If the Exxaro deal is as attractive as TROX claims and as we believe, the conservative pro forma capital structure could be better utilized by levering the balance sheet to reward shareholders with a substantial amount of cash in the form of a large special cash dividend We believe TROX can easily pay between $24 � � $43/share in cash and remain conservatively capitalized Page 4
Optimize Pro Forma Balance Sheet � We believe that TROX post-Exxaro deal ( � New TROX) � will be the strongest player in its industry with 100% vertical integration and unparalleled free cash flow generation � Net debt/11EBITDA will only be 0.5x post-Exxaro deal and after paying the $12.50/share cash consideration, levered free cash flow is expected to be approximately $700 million. This implies a greater than 20% FCF yield based on a pro forma New TROX market capitalization � New TROX should earn sustainably higher operating margins relative to its industry peers given vertical integration as well as the fact that 100% of the company � s capacity will consist of the more cost-efficient chloride process New TROX Comparable Peers Chinese Producers $4,000 60% $3,605 51% $3,500 TiO2 Production Cash cost (USD) / ton 50% $3,078 $2,820 $3,000 40% $2,495 40% EBITDA Margin $2,500 $2,214 $1,827 $2,000 30% 24% 33% $1,500 17% 20% $1,000 10% 3% $500 $0 0% Fully-integrated Ore-integrated Fully-integrated Ore-integrated Non-integrated Non-integrated Chloride Chloride Sulfate Sulfate Chloride Sulfate Source: Alembic Global Advisors. Page 5
Optimize Pro Forma Balance Sheet � We believe New TROX could easily lever up to 1.0x � 1.5x on a mid-cycle EBITDA basis and subsequently dividend the cash proceeds to shareholders while still maintaining strong credit metrics � Post-special cash dividend and Exxaro deal, we believe New TROX is fundamentally valued at $183 � $194/share including a $24 � $43/share cash dividend Target Leverage Low High Adj. Net Debt / Mid-Cycle EBITDA 1.00x 1.50x Net Debt / Mid-Cycle EBITDA 0.38x 0.38x Incremental Debt $617 $1,117 Total Net Debt $1,000 $1,500 Implied New TROX Equity Value $4,284 $4,068 Implied Enterprise Value $5,284 $5,568 EV / 12E Midpoint EBITDA 3.6x 3.8x Credit Metrics Net Debt / 12E Midpoint EBITDA 0.7x 1.0x Mid-Cycle EBITDA / Int. Exp. 12.3x 8.2x Mid-Cycle EBITDA - Capex / Int. Exp. 9.0x 6.0x Pro Forma EPS $19.91 $18.90 P/E Multiple 8.0x 8.0x New TROX Share Price $159.25 $151.21 Dividend / Share $23.85 $43.17 Total New TROX Value / Share $183.10 $194.38 % Change to Current Price 56% 66% Note: Mid-cycle/midpoint EBITDA, net debt data as per TROX 10/6/11 presentation, slide 14. Capex data as per slide 15 and TROX 10/10/11 conference call. Implied equity and enterprise values assume Exxaro Mineral Sands contribution on a 100% basis and 26.9mm diluted shares outstanding. Pro forma EPS EPS assumes 74% Exxaro Mineral Sands contribution, 8.0% cost of incremental debt, 35% cash tax rate and 25.9mm diluted shares outstanding. Page 6
Recommend
More recommend
