Sherwood Investments Overseas Ltd., which holds 2.86 percent of the outstanding shares of Rentech Inc., has offered to buy the company for $2.70 per share, or $441 million. Rentech is best known within the fertilizer industry as the owner of the East Dubuque, Ill., nitrogen plant, which it plans to convert to coal use instead of natural gas. Rentech bought the East Dubuque plant from Agrium Inc., which acquired it when it bought Royster-Clark. Rentech also has other coal gasification projects in its sights, most notably one in Natchez, Mississippi.
In a letter released Nov. 19 to Rentech CEO and President Hunt Ramsbottom, Sherwood’s Julian Benscher highlighted Rentech’s tremendous assets, noting that its stock price closed Nov. 16 at a 52-week low. “We are concerned that your weak share price may hinder your ability to execute your business plan and suggest that you should consider either taking the company private or spinning off the fertilizer operation,” said Benscher. “While not wanting to distract management from the important tasks at hand, we would be willing to put together a proposal at $2.70 per share to take the company private.”
Shares on Nov. 16 dropped as low as $1.72. After the Sherwood offer on Nov. 19, they rose to close at $2.13 on that date.
Rentech confirmed Nov. 20 that it received the letter from Sherwood. It said while it agrees with many of the points made by Sherwood in its letter as to the value of the company’s technology and other assets and their long-term value, Rentech had no prior notice of the letter or its contents before it was released publicly by Sherwood. Rentech said it will respond as it deems appropriate.
Benscher cited a long list of positives about Rentech, including: technology patents that can be used to produce environmentally friendly fuels from resources abundant in the U.S.; the mechanical completion of its $45 million Product Demonstration Unit, which is expected to produce its first fuels by spring 2008; high fertilizer prices with expectations they will stay that way for the foreseeable future; estimates that full-year EBITDA on the fertilizer plant will come in at $25 million and climbing; other publicly traded fertilizer companies trading near their 12 month highs, with valuations in excess of 18x EBITDA; reported cash and marketable securities in excess of $63 million; no borrowings on credit line; Peabody has a $10 million option to partner on some fuel production facilities; the state of Mississippi has granted preliminary approval to issue up to $2.75 billion of bonds for planned plant at Natchez; Denbury Resources Inc. has agreed to purchase the sequestered CO2 from the Natchez facility in order to use it for enhanced oil recovery; several pieces of legislation are before Congress that could provide further federal incentives to build production facilities; and the U.S. Air Force has begun the certification process to ensure that its entire fleet will be able to accept Rentech’s fuels by 2011, and some of their aircraft are ready now.
Benscher told Green Markets last week that this would be his first investment in the fertilizer industry, though he does have agriculture investments. Current investments are more related to the coal gasification side of Rentech’s business. Benscher said he is an investor in International Coal Group, which expects to sell 19 million tons of coal in 2007, according to its website.
Rentech has only owned the East Dubuque plant for a short time, but Benscher notes that it is quickly benefiting from high fertilizer prices and relatively low gas prices. Still, Rentech-wide, the company is working to get its technology business going full throttle; as a result, most of the revenues to date have come from fertilizer operations and the company has been reporting losses.
Benscher said if he buys Rentech, he may keep both sides of the business – coal gasification and fertilizer – as he is
interested in the potential of both.