Morningstar | FMC Completes Spin-Off of Minority Stake in Lithium Business; No Changes to Our Outlook. See Updated Analyst Note from 12 Oct 2018
On Oct. 11, FMC completed the initial minority stake spin-off of its lithium business, which now trades on the NYSE under the name Livent (ticker LTHM). FMC will retain an 84.25% equity ownership stake and as such will continue to report Livent's results in FMC's consolidated financial statements. We expected the minority equity stake spin-off to occur by the end of 2018, and with no changes to our outlook, we maintain our $90 per share fair value estimate for FMC. Our narrow moat rating is also unchanged.FMC plans to eventually divest the majority equity stake in Livent, a move that could happen as early as 2019. Regardless of the timing of the divestiture, we are in favor of the separation between the lithium and crop chemicals segments, as there were few operating synergies between the two entities, and both management teams will now be able to focus on expanding their respective businesses without competing over available capital.
Over the past few years, FMC has underinvested in the lithium business, as it was capital-constrained because of the Cheminova and DuPont crop chemicals acquisitions. We expect this to change. Livent has secured a $400 million credit facility that will be used to triple lithium carbonate capacity to 60,000 metric tons and triple lithium hydroxide capacity to 55,000 metric tons.
As a low-cost lithium carbonate producer, we think Livent's lithium carbonate expansion will create value for shareholders, as we forecast lithium demand to grow 19% per year through 2028 due to our above-consensus electric vehicle adoption forecast. However, we remain skeptical of Livent's lithium hydroxide strategy, as the company will purchase some third-party carbonate to fill its hydroxide capacity. While Livent has a cost advantage in lithium carbonate production, we do not think the company will enjoy the same cost advantage in lithium hydroxide production, especially when sourcing third-party carbonate.
For more information on our electric vehicle outlook, please see our Sept. 24 Observer, "Electric Vehicle Sales in China and Europe Will Leave U.S. in the Dust, Driving Above-Consensus Global Adoption Rates."
FMC is an agricultural sciences company. The company provides solutions to growers around the world with a product portfolio fueled by a discovery and development pipeline in crop protection, plant health, and personnel pest and turf management. This combination of technologies includes insect control products based on Rynaxypyr? and Cyazypyr? active ingredients; Authority?, Boral?, Centium?, Command? and Gamit? branded herbicides; Talstar? and Hero? insecticides; and flutriafol-based fungicides. The company's products are used in agriculture to improve crop yield and quality by controlling a range of insects, weeds and disease, as well as in non-agricultural markets for pest control.
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