NEW YORK (CNNfn) - While many companies in the chemical sector are feeling the adverse affects of high oil and gas prices, FMC Corp. is planning to split its chemical and machinery businesses to realize untapped value in its oil and gas development segment.|
FMC said Tuesday it is planning an initial public offering for up to 20 percent of its machinery business by the second quarter of 2001, and then to spin off the rest of the machinery company by the end of that year.
The largest component, about 60 percent, of the machinery company will be the energy services segment, which specializes in deep water offshore oil and gas field development. The chemical company will comprise industrial and agriculture chemical businesses.
"The main reason they are doing this is they are unlocking the high value of the subsea oil production business," said Mark Koznarek, analyst with Midwest Research. "Valuations of similar pure play companies are higher."
Koznarek pointed to Cooper Cameron (CAM: Research, Estimates) as a comparable company for FMC's energy services company. Cooper shares were down 50 cents at $54.38 in late afternoon trading.
FMC Chairman and CEO Robert N. Burt said in a statement that the chemical and machinery segments have few synergies, different customers, and different research and development teams and should be a clean split.
"This split also would allow shareholders to realize the value inherent in both our machinery and chemicals businesses," Burt said. "Because we've operated as a diversified company, much of that value, especially in our oil field services business, is not being recognized by the market. The financial community would be able to make more focused investment decisions."
"This makes a lot of sense; the only question (is): 'What took you so long?'" Koznarek said.
Raw material costs have hurt the chemical sector overall, and shares of major players Union Carbide (UK: Research, Estimates) and Dow Chemical (DOW: Research, Estimates) have dropped steadily this year. But shares of FMC have risen steadily since March.
Koznarek estimated two of FMC's three chemical segments will have significantly higher earnings this year.
Shares got a further boost from investors after the deal was announced, rising $4.94, 7 percent, to a new 52-week high of $76.44.
The split of the company is about even in terms of revenue. FMC had sales of about $4.1 billion in 1999, with the machinery business accounting for about $2 billion.
Burt will remain as FMC chairman and CEO, while FMC President Joe Netherland will head the machinery business. Netherland has guided the energy services segment of FMC since its inception.
The company does not expect "significant" layoffs.
Merrill Lynch advised FMC (FMC: Research, Estimates) and will be the lead underwriter for the IPO.