GREENWICH, Conn., June 26, 2014 /PRNewswire/ -- Dolphin Limited
Partnership III, L.P. and certain affiliates ("Dolphin III"), a
long-term sizable holder of Rentech, Inc. (NASDAQ symbol: RTK
or the "Company"), today announced that it is informing RTK's
shareholders of certain strategic initiatives Dolphin has advocated
to RTK as a result of its interaction with the Company during the
past 18-months in order to enhance the value of Rentech Nitrogen
Partners, L.P. (NYSE symbol: RNF) and generate a
significant increase in RTK's current share price: (i) the
rapid spin-off vs. an IPO (which is subject to a customary
discount, underwriting fees and market risk) in a Master Limited
Partnership ("MLP") of its wood fibre processing businesses; and
(ii) the establishment of a strategic alternatives process to
maximize value for RTK's 59.8% interest in RNF. Dolphin III
believes that a successful strategic alternatives process that
drives RNF to approximately $30 per
unit would generate a near 50% increase in RTK's current share
price.
A spokesperson for Dolphin III added, "With an expeditious
spin-off of the wood fibre processing businesses, the strategic
alternatives process should explore: (i) methods to
efficiently recombine the remainder of RTK (23.25 million RNF
units, its General Partner and sizable federal and state NOL's)
with RNF to create a more sizable and liquid MLP; (ii) repurchasing
RNF units to capitalize on the severely depressed price (currently
a significant discount to the replacement value of its facilities);
and (iii) a sale to a strategic acquirer.1
From October 2012--May 2013, Dolphin III and its outside advisors
presented a plan that, in its view, would have efficiently
recombined RTK and RNF in a new MLP (the "Dolphin III Plan").
Since then, with RNF down more than 50% and greatly underperforming
its peers, lower projected cash distributions, and larger RTK
NOL's, the review should also include a re-examination of the
Dolphin III Plan. (The Dolphin III Plan is summarized in the
attached addendum.)1 More recently, Dolphin
III's outside advisors also identified potential opportunities for
RTK and RNF to create value with and without a recombination.
Reasons for Dolphin III's Advocacy
Dolphin III, with the assistance of prominent outside advisors,
advocates these positions after 18-months during which it
communicated extensively with RTK and its outside advisors as well
as consideration given to other facts and developments1
–
- RTK's historical business plan has utilized cash distributions
from RNF to invest in enterprises unrelated to RTK's core RNF
Nitrogen fertilizer business and which, in the aggregate, has
generated a sizable cumulative deficit for RTK and reduced value on
an absolute and relative basis for RNF holders;2 ,3
- RNF remains captive inside RTK, which should be resolved to
maximize value - the Dolphin III Plan addresses this. Dolphin
believes that greater consideration is required of RNF's relative
size (approximately 1.0 million annual metric tons of Ammonia, UAN
and liquid and granular Urea - excluding other products and the
Pasadena, Texas, Agrifos facility
- and an approximate $.9 billion
current TEV) to that of its competitors, premium pricing from its
mid-corn-belt location and proximity to customers and natural gas.
Resolving the highly inefficient RTK/RNF structure would
enhance RNF as an attractive acquisition candidate -- especially to
cross-border competitors2;
- RTK and RNF appear significantly undervalued on absolute and
relative terms;
--Since December 31, 2012, the
percentage decline in RNF's total return (unit price plus
distributions) -- is approximately (-50%) vs. (-2%) for the average
total return of the seven other publicly traded peers. RNF's
percentage decline is over 2 x's that of the next worst performing
peer3;
--RNF's current TEV approximates 50% of the estimated net
replacement value of its facilities when certain competitors have
indefinitely delayed greenfield projects4,
highlighting the acquisition value of existing
strategic operating assets;
-- The pre-tax intrinsic value
of RTK's net assets, with RNF units at $16.32 and RTK's other net assets valued at
$1.63 per share, is approximately
$2.95 per share. Yesterday,
RTK closed at $2.435;
--The pre-tax intrinsic value of RTK's net assets with RNF
units at $30 (a
TEV approximating 75% of RNF's estimated net replacement
value) is approximately $4.05 per
share, more than a 65% increase from yesterday's closing
price5.
--The public analysis provided by RNF for 2014 EBITDA indicated a
cash distribution of approximately $2.40 per unit, or over a 14% current yield --
materially greater than any other public sector MLP or
corporate peer.3,5
The Dolphin III spokesperson concluded, "RNF does not appear to
be large enough to be standalone, but given certain favorable
attributes, including the "transportation cost advantage" of its
East Dubuque, Illinois facility
and current industry and capital market dynamics, Dolphin believes
it would be attractive, in particular, to certain domestic and
cross-border strategic acquirers. Utilizing the current
implied pre-tax market value of the wood fibre processing
businesses in a spin-off, together with the other net assets
(approximately $470 million or
$1.63 per fully diluted RTK share),
an efficient sale of RNF (under the Dolphin III Plan, or an
alternative plan) at $30 per unit,
would generate total pre-tax value to RTK shareholders of
approximately $3.63 per share*,
nearly a 50% increase from yesterday's $2.43. The Dolphin III Plan appears to
add over 20% of value to RTK shareholders standalone or in a
sale. Importantly for all RTK shareholders and RNF unit
holders, today the Dolphin III Plan may initiate a sale of the
recombined entities to a strategic acquirer."
To learn more about the Dolphin III Plan investors may refer to
the attached addendum and the contacts below.
Dolphin's private investment entities have an extensive record
of working to deliver value for all shareholders and constructively
engaging with managements and Boards.
* 1 RTK = $1.63 of wood fibre
spin-off + .0667** of RNF @ $30/unit.
** (34.8 million New RNF units X 55% /287 million fully diluted RTK
shares)
ADDENDUM
THE OCTOBER 2012 ORIGINAL DOLPHIN
III RECOMBINATION PLAN
- A $65 million ($0.27 per fully diluted share) special
dividend/return of capital6;
- The separation of RTK's previous alternative energy assets with
working capital via a tax-efficient spin-off or
rationalization of these assets -- enabling the "right–sizing" of
RTK's corporate overhead. Today, a spin-off or leveraged
spin-off of the wood fibre processing businesses in an MLP should
be pursued expeditiously (a spin-off avoids the customary IPO
discount, underwriting fees and market risk)7; and
- The efficient recombination of the remainder of RTK (consisting
of 23.25 million RNF units, its General Partner and sizable Federal
and State NOLs) with RNF by way of a tax-free exchange of RTK
shares and RNF public units for units of a substantially more
liquid newly established MLP ("New RNF") with enhanced pre-tax
distributions per unit. RTK, with its remaining net assets,
would become a wholly-owned subsidiary of New RNF.
Under the Dolphin III Plan, RNF and RTK holders would own
approximately 45% (vs. 40.2% today) and 55% (vs.59.8 % today),
respectively, of New RNF's 34.8 million fully diluted shares to be
outstanding.8 There would be no necessary change in
RNF's capital structure or operations, and no change-in-control
under the $320 million 6.5% second
lien notes due 2021, issued by RNF in April
2013.
Substantial Benefits and Fairness under the Dolphin III Plan for
RTK and RNF Holders
Dolphin III and its outside advisors believe that the Plan
presented in October 2012 offered
substantial benefits to RTK and its holders and was of material
benefit to and was eminently fair to RNF and its holders.
Under the Dolphin III Plan, both RTK and RNF holders, through their
interests in New RNF, would have received improved pre-tax
distributions per unit. Both RNF and RTK holders would
have received a greater after-tax present value upon the sale of
their interests in New RNF. As an additional permanent
benefit, a meaningful portion of New RNF's taxable income would
have been taxed at the new 23.8% "all-in" individual highest
federal income tax rate on qualified dividends vs. the new 43.8%
"all-in" federal income tax rate on current ordinary income and
cumulative deferred income realized upon the sale of units.
The Key Benefits to RTK and its shareholders were:
- An approximate 50% aggregate increase in the value of
their interests at the then RTK and RNF prices;
- Efficiently addressing "double taxation" on fully taxable
distributions received from RNF once RTK's NOLs were utilized;
and
- Enabling RNF, through New RNF, to be acquired tax free without
any significant adverse tax consequences to RTK and its
holders.
The Key Benefits to RNF and its unit holders were:
- A 9% increase in pre-tax distribution per unit at New RNF vs.
RNF and an expected corresponding unit price increase;
- New RNF would have had approximately 34.8 million units
outstanding and public float vs. RNF's 15.6 million public
float8;
- New RNF would have owned its General Partner and be controlled
by its unit holders; and
- RTK's control of RNF would no longer impede an acquisition of
RNF.
The Dolphin III spokesperson added, "After an extensive review,
Dolphin III and its outside advisors, in highly detailed
communications, addressed all of RTK's questions and demonstrated
that there appear to be no material technical or other defects
in the proposed transaction that materially alter its compelling
nature, especially after individual federal tax rates for qualified
dividends and capital gains were resolved. Whether
examining the transaction on current yield, or pre- and after-tax
present values, the Dolphin III proposal showed a significant net
increase in total value for RTK holders and real value and material
net benefits to RNF holders."
"This transaction would have efficiently recombined RTK and RNF
in a new, substantially more liquid MLP with enhanced distributions
and eliminated the RNF control discount. Today, the
transaction appears to improve the attractiveness of RNF as an
acquisition candidate when purchasing operating assets in the
market appears significantly less expensive than new
construction."
"Further, the Dolphin III Plan was designed when RNF was more
than double its current unit price, had substantially greater
projected cash distributions and smaller NOL's. Current facts
make the Dolphin III Plan even more compelling. These
value-creating opportunities for RNF are currently impeded as RTK
holds 59.8% of RNF and owns its General Partner. An efficient
recombination of RTK and RNF (in a new MLP) provides an opportunity
to maximize value for holders of both entities, standalone or in a
strategic alternatives process."
1On December 9, 2013,
Mosaic Company (NYSE ticker symbol: MOS) announced a plan to
repurchase for approximately $2.0
billion, 43.3 million Class A shares. On February 11, 2013 MOS announced an additional one
billion Class A and Common share buyback in open market and/or
private transactions. Both repurchase plans represented
approximately 15% of the total shares outstanding. In a
November, 2013 letter to the RTK Board Chairman, Dolphin advocated
the repurchase of up to 15% of its fully diluted shares with the
shares trading at approximately $1.75. RTK did not pursue this
proposal. RTK, in its March, 2013 earnings report,
indicated that it had spent approximately $1.0 million on tax and advisory work to evaluate
restructuring proposals by shareholders.
2Although the RNF holdings represented approximately 75%
of RTK's pre-tax net asset value, the 18-peers reflected in
RTK's 2012 and 2013 proxy statements do not include fertilizer
companies. Here we are specifically referring to RNF's
$158 million Agrifos acquisition
with $56 million of add on projects
and RTK's alternative energy projects. "From inception on
December 18, 1981 through
December 31, 2013, we have an
accumulated deficit of $385.3
million." (Source: 2013 RTK 10K). In 2013, 79%
of East Dubuque's revenue was sold
through a distribution agreement with Agrium expiring in
June 30, 2016 with certain renewal
options. Also, 14% of 2014 sales were made directly or
indirectly to Agrifos.
3Rentech Nitrogen Partners, L.P. (RNF) has an
approximate $700 million market
capitalization as compared to its public competitors, whose ticker
symbols and approximate equity market capitalizations are as
follows: Yara International (YAR.OL)-U.S. $13.9 billion; CF Industries,
Inc. (CF) – $12.6 billion; Terre
Nitrogen Company, L.P. (TNH) – $2.7
billion; CVR Partners, L.P. (UAN) –$1.4 billion and net cash
flow; Potash Corporation of Saskatchewan, Inc. (POT) – $32.1 billion; The Mosaic Company (MOS) –
$19.2 billion; Agrium, Inc. (AGU) –
$13.2 billion. (Source:
Bloomberg.) On July 29, 2013 a
private investment firm announced an unspecified stake in CF
causing the shares to initially jump 12%. The private
investment firm advocated a significant increase in the dividend
(Source: Dow Jones).
4On June 2013, YAR.OL
announced the deferral of a 1.3 million metric ton Ammonia/Urea
expansion project at its Saskatechewan, Canada Belle Plain facility
at a cost analysts estimated to be $2
billion (Source: Reuters); AGU announced a deferral of
a $3 billion, 1.8 million ton
nitrogen facility in the US Midwest, citing increasing construction
costs and pricing concerns (Source: Bloomberg). In August, 2012
RTK/RNF senior management indicated that RNF had an approximate
$1.5 billion replacement value before
its $97.8 million expansion project
and the November 2012 Agrifos
acquisition for approximately $158
million plus $56 million of
add on investments.
5Prior to the issuance of $100
million of 4 ½% preferred shares convertible into
approximately 45.0 million shares or 16.5% of the fully
diluted shares, there were approximately 242 million
fully diluted shares (TSM-at RTK share prices between $2.60-$3.65 (227.5 million shares outstanding,
3.5 million options @$1.59, plus 1.3 million warrants @$.57 and
11.3 million RSU's and PSU's (Source: RTK 2013 10K), and an
estimated $175 million of net other
assets: the investment in the wood fibre processing business
of $125.5 million (May 2, 2013 Investor Presentation) $22 million of projected of 2014 EBITDA after
$15.0 million of unallocated cash
corporate overhead; $136.1 million
Federal NOL, X35% (Source: March 11,
2014 Earnings Report). However, the 2013 RTK 10K
suggests that the cost of the wood fibre and pellet businesses will
be approximately $157 million.
On May 1, 2014 RTK announced the
acquisition of New England Wood Pellet for approximately
$45.1 million including assumed
debt. On June 16, 2014, RTK
announced a series of long-term processing agreements with
subsidiaries in Chile for
$8.6 million. The RNF units
held by RTK have no tax basis (April
2012 investor presentation). On February 12, 2014, RNF issued a public
announcement with 2014 EBITDA sensitivity analysis prepared by a
third party consulting firm. The base case indicated
$123.1 million in EBITDA. A
prominent sell side research firm indicated that the "base case"
yields annual cash distribution of $2.43 per unit before any replacement of a
working capital reserve of $.20-$.40/unit. On February 13, 2014, RNF indicated that it was not
providing guidance on cash distributions per unit until later in
2014. No distribution update was provided with RNF's
March 11, 2014 earnings report.
6In December, 2012 RTK distributed $.19/outstanding share ($42.5 million) in a dividend/return of
capital.
7These assets previously included a significant amount
of net cash, as well as remaining alternative energy assets.
RTK's substantial net cash was subsequently deployed in the wood
fiber processing businesses. Natchez was sold for
$9 million in August, 2013. In
March, 2014 the alternative energy technologies and the PDU were
sold for $15.3 million plus
$16.2 million upon the successful
redeployment and startup of the PDU less $5.1 million of transaction expenses. On
September 23, 2013, RTK obtained a
$100 million three-year revolving
loan facility initially secured by 15.4 million RNF units and,
under certain circumstances, up to 19.4 million units. On
April 9, 2014, RTK announced a new
$50 million term loan to replace the
outstanding balance on the term facility. In addition, a
$100 million of preferred stock
convertible into approximately 45.0 million shares (convertible at
$2.22) was added. On
February 13, 2014, RTK announced "the
continuation of its announced strategy to expand the wood fibre
processing businesses and progress toward a potential IPO as an MLP
in less than two years for this business. In its March 11, 2013 earnings reports, RTK provided
2014 guidance of $22 million of
EBITDA after $15.0 million of
unallocated cash – corporate overhead."
8RNF currently has a 15.6 million public float with
approximately 39.0 million fully diluted units outstanding.
SOURCE Dolphin Limited Partnership III, L.P.