W.R. Grace's stock slides in advance of split this week

Sunday, 11 June 2017, 02:55:39 AM. Specialty chemicals giant W.R. Grace's stock has tanked this month, dropping more than 20 percent since the end of 2015, in advance of its split into two separate, publicly traded companies later this week.

In advance of its split into two publicly traded companies on Wednesday, W.R. Grace & Co.'s stock has dropped more than 20 percent since the end of 2015.

The spinoff will split Grace's construction products business into a company called GCP Applied Technologies Inc., that will be headquarted in Cambridge, Mass. Grace's silica and catalyst businesses will retain the W.R. Grace name and remain headquarted in Columbia.

Company officials pitched the spinoff as a way to help the disparate businesses simplify operating structures and enhance focus, while boosting value for shareholders. When the split was announced a year ago, the company's stock shot up 12 percent in a day.

But since Dec. 31, Grace's stock has dropped from $99.59 per share, hitting a low of $78.45 on Jan. 29. Shares bounced back a little Monday to close at $82.60.

After the split, Grace is expected to have $1.7 billion in annual sales, while GCP is expected to have $1.4 billion in annual sales. The tax-free spinoff comes two years after Grace emerged from 13 years in bankruptcy-law protection related to asbestos claims.

wr-grace-and-apos;s-stock-slides-in-advance-of-split-this-week photo 1 Carrie Wells

Columbia-based specialty chemicals giant W.R. Grace & Co. announced Thursday that it would split into two independent companies, one focused on construction products and one focused on other materials and chemicals.

Grace officials said the split, in which both companies would be publicly traded,...

Columbia-based specialty chemicals giant W.R. Grace & Co. announced Thursday that it would split into two independent companies, one focused on construction products and one focused on other materials and chemicals.

Grace officials said the split, in which both companies would be publicly traded,...

(Carrie Wells)

Grace shareholders will get one share of GCP for every Grace share they own. The two companies' shares will begin trading separately Thursday.

Chris Kapsch, a senior equity analyst and managing director for BB&T Capital Markets, said investor confidence in non-residential construction and emerging markets had become shaky amid fears over China's economic slowdown. GCP, the spinoff business, is heavily involved in non-residential construction and emerging markets.

Furthermore, he said, investors are concerned that falling oil prices could affect Grace's catalyst business.

"The strategic rationale makes sense," Kapsch said. "They were just impacted by unfortunate timing, given some skittish financial markets right now."

wr-grace-and-apos;s-stock-slides-in-advance-of-split-this-week photo 2 Jamie Smith Hopkins, The Baltimore Sun Columbia chemical maker — and its stock price — grew during nearly 13-year wait Columbia chemical maker — and its stock price — grew during nearly 13-year wait (Jamie Smith Hopkins, The Baltimore Sun)

At Grace's investor day last Tuesday in New York City, Fred Festa, Grace's chairman and CEO, who will continue to lead Grace after the split, said the company was excited about what the spinoff would bring.

"It's become clear to me that the vision we've created and the benefits are truly there," Festa said. "The strategic momentum we've created is there, it's coming to fruition."

In the last month, Grace has released information on what earnings it expects to report for 2015 and what its expectations are for the coming year, said spokesman Rich Badmington.

"There's a tremendous amount of information that the market has had to absorb," he said.

The company remains confident in its strategy, Badmington said.

"We are looking forward to a solid 2016 and very confident that the rationale for the separation is going to be all that we expected it to be," he said. "We think it's a temporary situation with the stock and are confident that when people have time to process it all that we will see the kinds of numbers that we and analysts are projecting."

More growth was predicted in the construction business, he added.

"Clearly we thought long and hard about what timing would make sense," he said. "This is a moment in the construction cycle which promises more growth."

After the company's stock price fell, Cleveland-based KeyBanc Capital Markets analyst Michael J. Sison wrote in a research note that Grace's stock after the spinoff would offer a good buying opportunity. Stock in the chemicals company after the spinoff is expected to be valued around $62 and Sison predicted it would rise to $73 per share in a year.

"We believe New GRA (Grace's ticker symbol) offers a high quality specialty chemical franchise with the strongest profitability in our chemicals coverage," Sison wrote. "While we did reduce our outlook for New GRA due to a weaker start to the year... we see solid earnings growth in a tough external environment."

Chris Shaw, a senior analyst with New York City-based Monness, Crespi, Hardt & Co. Inc., said there are likely an array of reasons why the company's stock price is down.

Sometimes ahead of spinoffs, some investors decide they don't want to own shares in both companies, so they sell them off. Some investors may have interpreted the company's prediction of how it will do in 2016 not so positively, though Shaw called it "solid."

And many investors are concerned about China and what affect it may have on companies that have exposure to emerging markets.

"In advance of spinoffs shares often trade volatile," Shaw said. "I think the real test will be a couple weeks from now."

cwells@baltsun.com

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