W.R. Grace & Co., a U.S. chemical producer that spent almost 13 years in Chapter 11 bankruptcy, plans to separate into two companies. The shares rose the most in five years.
One of the new companies will comprise Grace’s catalysts- technologies and materials-technologies businesses and be led by current Chairman and Chief Executive Officer Fred Festa, the company said Thursday in a statement. The other will contain the construction-products and packaging units and be led by Grace Chief Operating Officer Greg Poling.
Grace is “effectively spinning out its more economically sensitive construction products business,” said Ahmed Alamin, a New York-based analyst at Cowen & Co. who rates the shares the equivalent of buy.
Grace, which exited bankruptcy protection in February 2014, expects that creating two companies with simplified structures will allow management to better focus on strategy and productivity. A similar breakup strategy has been recommended by activist investors pushing for higher returns atGrace competitors DuPont Co. and Dow Chemical Co.
“We think it sets up two very strong companies to pursue their agendas,” Chief Financial Officer Hudson La Force III said on a conference call Thursday. La Force will join the catalysts company.
The stock rose 9.1 percent to $99.42 at 10:17 a.m. in New York after earlier gaining 15 percent, the most intraday since May 2009.
The separation, expected to be completed in about 12 months, will be structured as a tax-free spinoff to shareholders of Columbia, Maryland-based Grace. The names of the new companies will be announced before the spinoff is completed.
The catalysts and materials producer, temporarily known as New Grace, will have sales of about $1.8 billion and will seek “strategic bolt-on” acquisitions, Grace said.
New Grace got 71 percent of sales last year from catalysts, primarily those used to refine oil and make chemicals and plastics, the company said in a presentation on its website. It posted about $500 million in earnings before interest, taxes, depreciation and amortization, excluding some items, for a 28 percent adjusted Ebitda margin.
The other company, dubbed New GCP, got three-fourths of its $1.5 billion in sales last year from construction products such as chemicals used in concrete and cement, Grace said, while the rest came from its Darex packaging unit. Its $260 million in adjusted Ebitda produced a 17 percent margin.
Grace filed for Chapter 11 bankruptcy protection in 2001 to deal with claims its asbestos products injured users. Under a reorganization plan approved in January 2011, Grace agreed to fund a trust to compensate people with lung diseases related to asbestos, once used in products including car brakes and fireproof insulation.
Goldman Sachs Group Inc. is the financial adviser on the separation and Wachtell, Lipton, Rosen & Katz is Grace’s legal counsel.