fulcrum celaneseipo

Important disclosures and analysts certifications in Appendix A.

CE: Celanese Pre-IPO: Range is Expensive; Looking for $14

Frank J. Mitsch (212) 803-7028 [email protected] James Chen, Ph.D. (212) 803-7036 [email protected]

January 18, 2005

Key points:

Celanese Corp. (CE) filed a registration statement with the SEC proposing the sale of 50 MM shares in an initial pubic offering, which we expect to price within 48 hours. Assuming the deal is priced within the midpoint of the proposed range ($19 -$21), proceeds of $952MM are expected to be directed toward the selling shareholders, the Blackstone Group. Following the offering, the Blackstone Group will control 63% of the 159 MM shares outstanding. Should the 15% green shoe be exercised, the Blackstone Group will receive most of the proceeds without an increase in the shares outstanding.

Investment Positives:

Near-term earnings running in the right direction. 2004 estimated EPS of $0.82 is well ahead of 2003s $0.31, highlighting the petrochemical recovery is underway.

Longer-term earnings suggest this is the right part of the cycle. Based on our analysis, we forecast CE to earn $1.20 in 2005; a ~50% increase from 2004. The expected EBITDA improvement is significantly ahead of what Celanese has been able to achieve in the past several years.

Leverage to Acetyls and M&A driving the numbers. We cant help but readily think of Celanese as a smaller version of Eastman, albeit one with more commodity leverage, even more so after the Acetex acquisition. CE is highly levered to acetic acid and VAM but has a raw materials disadvantage to EMN since EMN starts with coal and CE starts with natural gas.

No Longer German domiciled. Following the takeover by the Blackstone Group, CE is now domiciled in employer-friendly U.S. as opposed to employee-friendly Germany. The switch from Euro to USD as the key currency is also helpful in the current environment. CE also changed over from LIFO to FIFO accounting.

Potential for Delevering. Following the dramatic increase in debt placed upon CE following the Blackstone takeover, the potential for FCF generation leading to lower future interest payments could shift the firm value more from debt to equity.

Possible Risks:

Lack of control/overhang of stock. With the Blackstone Group holding 63% of the shares outstanding, other investors have no guarantee that they will be able to affect the decision-making process. Furthermore, Blackstone can sell the stock in the public market after a 180-day lock-up period, which may put pressure on the share price.

Economic uncertainty. Should the current economic recovery lose steam (due to high energy costs, etc.), we believe CE's earnings will be directly impacted. While the company has earned a reputation for generating FCF, the very high debt burden and negative shareholders equity are cause for concern. Investors should note that Solutia was spun out with negative shareholders equity too.

FULCRUM GLOBAL PARTNERS LLC January 18, 2004

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Energy costs. The rampant rise in hydrocarbon feedstocks may continue putting further pressure on CEs margins. A $1/MMBTU change in natural gas impacts EPS by ~$0.51 while a $0.01 change in ethylene impacts EPS by ~$0.07.

Haphazard feeling to the IPO run-up. The evolving changes to the S-1 last week provide a modest hit to transparency. For example, public comments that Ticona has 36% of sales in Asia are untrustworthy in our opinion (perhaps using 100% of minority-held JVs which is a very curious/misleading metric). Comments from the roadshow pointed towards a major commitment from management to buy at the IPO price only to be whited-out in the regulatory filing the next day. Ticonas growth is reported to be 11% since 2001, but if you use 1999 as starting point, its closer to 4%.

Investors disinterest due to bitter taste on CZ. One of the more contemptuous conference calls in recent times was the CZ call announcing the acceptance of the Blackstone bid. Investor after investor stated open displeasure for selling out at a low price right on the cusp of a chemicals recovery. With 20/20 hindsight, they were indeed correct. Blackstones potential of turning a $640 MM equity sake into ~$3.4 B in cash and stock in less than a years time is not water into wine, but could give investors pause.

Nutrinova business tanks after loss of Sunette patent. While not the key driver behind CE, were wary that the Nutrinova division can continue to deliver higher margins than the company average as it previously had, as Sunette comes off patent this year. CEs attempts to sell Nutrinova have been unsuccessful.

Valuation. As detailed below, we believe that CE would be generously valued today at $16, in line with where its comps are trading, suggesting that a 15% IPO discount should price the deal at $14. Note: the multiples used for CE are significantly higher than where CZ traded previously -- CZ would currently trade below $10 in our opinion. CE will offer a 0.75% yield vs. 3.2% for the comps, and is junk-rated vs. the comps investment grade.

Rating: NMF FY: Dec 2003 A 2004 E 2005 E IPO Midpoint of range: $20 Mar -- -- -- 52-Week Range: NMF Jun -- -- -- Market Cap. (B): 3.2B Sep -- -- -- Avg. Daily Volume: NMF Dec -- -- -- 3-Yr. Est. Grwt Rate: NMF FY 0.31 A 0.82 E 1.20 E Investment theme: Value Previous Dividend Yield: 0.75 Consensus Target price NMF P/E 64.5x 24.4x 16.7x Risk level Speculative Revenue (B) $4.6 $5.0 $5.9

NMF Not meaningful.


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Celanese Pre-IPO: Range is Expensive; Looking for $14

The chemicals IPO calendar continues to chug along with the latest to come public being Celanese. Now the name is likely to be VERY familiar to you since it was in fact a NYSE public company less that a year ago, albeit under-followed since it was a German-domiciled company having been spun-out of Hoechst. (Fulcrum note: The name is VERY familiar to us since one of the members of Fulcrum Global Partners chemicals research team worked three years for Celanese.) The acquisition by Blackstone, announced in December 2003, touched off a firestorm among many shareholders, who were incredulous that management would sell out so cheaply on the cusp of an industry recovery.

Celanese is a classic example of a private equity firm identifying an undervalued public asset, finding a way to cajole a majority of shareholders to tender, making some internal changes, and then flipping the company back to the public and pocketing some serious ch-ching. After putting in ~$650 MM in equity back in April 2004, Blackstone has already pulled out $500MM, and is looking for another $952 MM on the deal while still maintaining the majority stake (63% or 58% depending on the greenshoe). All told, Blackstone's initial stake could be more than quintupled in less than a year.

Of course, all must go smoothly with the offering for this to be fully realized and that is not a fait accompli in our opinion. Based on our analysis, we are in agreement with some of the statements made in this weekends Barron's article titled, Bad Chemistry: The Blackstone Group is profiting from its Celanese IPO formula; but investors arent likely to. For example, Barrons said, Blackstone, however, doesnt appear to be giving much away in the IPO. Based on cash flow, Celanese isnt coming public at any concession to its peers and it has some notable negatives, including a high debt burden. Investors partial to chemical stocks would do better with industry leaders DuPont or Dow Chemicals, or the smaller Eastman Chemical. With the current offering range, we agree.

This report will hopefully provide you with an overview of Celanese, the IPO, and the future plans to create value, the management, etc. It will also delve into the four major business units so that you can gain a better appreciation for what CE is. Also, we spend some time providing our analysis of valuation and why a $14 IPO price is more than fair, based on our current understanding of Celanese and the chemical industry.

We should note that we relied heavily on the S-1 for the numbers behind the story, as well as some data presented during the roadshow although, the roadshow information did not jive with the S-1 (please take a guess which was more bullish), and although we attempted to, we were unable to go through the discrepancies with management. For the sake of your understanding, we highlight where we think there were differences [for example, a $967 MM LTM EBITDA figure was mentioned during the roadshow but we immediately stripped out a $60 MM credit for 2 acquisitions that have yet to close (did we mention that this was a Last Twelve Months figure) as well as $35 MM in Proforma savings yet to be realized.]

Valuation To justify a valuation in the same zip code as the offering range, one clearly has to believe heart and soul that the CE Celanese is substantially better than the CZ (the former ticker) Celanese, as well as make allowances for several EBITDA add-backs. Even then, we suspect that an investor would need to believe that CEs prospects were superior to EMNs and DOWs.

If one were to use the average multiples of CZ for CE, the offering range would really be $9 - $11, and not $19 - $21. However, we do believe that CE is a better company than CZ due in large part to the change in domicile which allowed the more aggressive work on cost reductions to take place (although there are instances where real talent was caught up in the restructuring), to say nothing of the currency change and more liquid equity markets. Additionally, the pending acquisitions are expected to help improve CEs competitive standing. While other parts of this report will delve deeper into CEs prospects, lets turn to our thoughts on valuations.


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We cant help but readily think of Celanese as a smaller version of Eastman, albeit one with more commodity leverage. CE also has characteristics of Dow and Lyondell, but perhaps less so than EMN, so were using a blended average (60% EMN, 20% DOW, 20% LYO) for comparison purposes. Before we simply use a set of comps to determine a price, we should also take into account a major difference; the 63% controlling stake by the Blackstone Group necessitates, in our mind, a meaningful discount.

We note that NL Industries, which featured 80% ownership by Harold Simmons, rarely received an appropriate market multiple, due to concerns about being a minority stakeholder without a sufficient voice in the running of the company. Lo and behold, when Mr. Simmons used NL as a hostile takeover vehicle, nary was heard a dissenting word. In CEs case, we have no evidence that something of the sort might occur, but regardless, public shareholders have little voice. So what should the appropriate discount be in this case? Well leave that up to you, but we can be persuaded that 5% to 20% could be appropriate.

Additionally, we think EMN and the peer group deserve to trade at a premium to CE for the yield alone. EMN currently yields 3.4% (the peer group is 3.2%), while CE is expected to come out at only 0.75%. CE is also a materially riskier credit, with a rating from Moodys of Caa while EMN is Baa.

Using the midpoint of the range, CE would be trading at 16.7x our 2005 estimate, and 7.3x 2005 EV/EBITDA. Both of these metrics actually shows that CE would trade at a premium to the set of comps, which is unrealistic in our opinion. Therefore, the offering price should come in below the red herring offering range. The table below highlights the various numbers:

Exhibit 1. Valuation of CE vs. Comps

Ticker 2004E 2005E 2004E 2005E Yield P/BookEMN 21.5 14.7 8.1 7.7 3.4 3.8DOW 19.0 12.4 9.1 6.9 2.8 4.9LYO nm 12.3 8.3 5.7 3.2 4.3Average-a 20.9 13.8 8.3 7.1 3.2 4.1

CE ($20) 24.4 16.7 9.1 7.3 0.8 neg. bookCE Premium/discount 17% 21% 9% 2% -77% nm

CE ($16) 19.5 13.3 8.3 6.6 0.8 neg. bookCE Premium/discount -7% -3% 0% -7% -77% nmCE ($15) 18.3 12.5 8.1 6.4 0.8 neg. bookCE Premium/discount -12% -9% -3% -10% -77% nmCE ($14) 17.1 11.7 7.9 6.3 0.8 neg. bookCE Premium/discount -18% -15% -5% -12% -77% nmCE ($13) 15.9 10.8 7.7 6.1 0.8 neg. bookCE Premium/discount -24% -21% -8% -14% -77% nm

P/E EV/EBITDA

Source: FactSet, Celanese, Fulcrum Global Partners LLC

It was not that long ago that Celanese was, in fact, a freely floating public company, so it may be instructive to look at the valuations the market placed on CZ. Looking at P/Es on current year numbers, CZ traded at an average of 10.9x with a 13.5x being the typical high point prior to the announcement of the Blackstone bid. Our estimates would yield an equity value of $9 or $13 depending on whether we use 2004 (to be consistent) or 2005 (to be generous). We also sought to use P/B as a metric, with CZ having averaged 0.5x P/B, but that analysis was not realistic given CEs negative shareholders equity.


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Exhibit 2. Former P/E and P/B for CZ

Source: FactSet, Celanese, Fulcrum Global Partners LLC

The analysis using the average EV/EBITDA for CZ of 3.6 appears even more troubling, in our opinion. In fact, given the large portion of EV that is debt, we find there would be nothing left over for the market cap portion so the equity share price would be


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Where does that leave us? Returning back to the set of comps and using an in-line valuation should yield a share price of ~$16. In the paragraphs above, weve argued that CE should in fact trade at a discount to the peer group without even considering an IPO discount. However, if an investor could make the compelling case that CE should trade in-line, a typical IPO discount of 15% suggests to us an offering price of $14. Obviously, this analysis is predicated on our understanding of the company and industry, using (among other sources) the S-1 and by interpreting the roadshow, without the ability to fully delve into the financials with the company given their silence (heck, even Doug Brien spoke after Saturdays disaster!). Should it turn out that the real numbers are materially different from what we present, then of course, the valuation would be different as well.

IPO Offering CE plans to issue 50 MM shares of Series A at the public offering. Assuming the overallotment shares are exercised, this represents ~ 31.5% shares outstanding after the IPO. The total shares outstanding will be 159 MM shares (although for some reason, management highlighted 156 MM during the roadshow), as shown below:

Exhibit 4. Common Share Outstanding after IPO Class Share Common share offering Series A 50 MM Over-allotment option Series A 7.5 MM Share to be issued to management

Series A 1.4 MM

Original stockholders Series B 100 MM Total 159 MM

Notes: Series B stock will automatically convert to Series A stock after the payment of the special Series B stock dividend of $952 MM. Source: Celanese, Fulcrum Global Partners LLC

Source and Use of Cash The IPO is expected to raise $1B if priced at $20/share. These proceedings will be used to pay dividends to Blackstone (Series B holders). Additionally, the company also plans to offer concurrently 8 MM shares of convertible preferred stock concurrently with the expected proceeds of $200 MM, which along with $945 new senior credit facilities, will be used to pay down some of the outstanding loans, as outlined below:

Exhibit 5. Source and Use of Cash from IPO Sources $MM Uses $MM Series A Common Stock

$ 1,000 Dividend to Blackstone $952

Preferred Stock 200 Redemption of Senior Discount 207 New Senior Credit Facilities

945 Redemption of Senior Subordinated 566

Repayment of floating loan 350 Estimated fees & expenses 70 Total $2,145 $2,145 Source: Celanese, Fulcrum Global Partners LLC

Debt Structure Celanese had ~$3.2B of outstanding debt as of Sept. 2004. The overall cost of borrowing is over 7%. ~92% of the debt term is beyond 5 years. The major debts issued are listed below:


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Exhibit 6. Major Debt Financing Issued Amount, MM Due/Term Senior Credit Facilities 4/6/04 $ 1,200 5-7 years Floating Rate Term Loan 6/8/04 $ 350 Senior Subordinated Notes June & July 04 $ 1,225 + 200 Euro 2014 Senior Discount Sept 04 $ 853 face value

($513 proceeds) 2014

Source: Celanese, Fulcrum Global Partners LLC

Before Blackstones LBO, Celanese AG reported net debt of only 404 MM as of 1Q04 (but has over 1 billion pensions and other obligations). Blackstone acquired about 84% of the shares in April at 32.50/share. With ~49.3 MM shares outstanding, 84% of shares costs about 1,350 billion, for which Blackstone spent about $640 MM in cash and borrowed Senior Credit Facilities of ~$1,200 billion. Later, Blackstone pulled out a $500 MM cash dividend and financed additional debt of ~$2.3 billion by the end of September 04. As of September 04, the proforma balance sheet in S-1 filing recorded $(1,005) MM in shareholders equity, giving them a significant, leveraged position.

During the roadshow, management reported total net debt of $3,925 MM based on their proforma balance sheet including the announced acquisition of Acetex, which has ~$231MM net debt. However, adjusted proforma net debt was reported at $3,681 MM based on the roadshow presentation.

Comparative EBITDA's One of the more confusing tasks for an analyst to go through is to try and reconcile managements much ballyhooed proforma LTM EBITDA number of $967MM, with any of the myriad of EBITDA numbers actually found in the S-1. As you will see in the table below, we failed (by the tune of $106 MM!) and in our opinion feel that a realistic look at LTM EBITDA would be $730 MM. Now, a few of the adjustments to the $967 MM number were very easy to make. For example, CE management included $60 MM coming from the acquisitions that haven't even closed yet, and another $35 MM comes from cost savings that haven't been realized yet. CE's numbers promise to become even more confusing with "significant" charges for its fourth quarter, and the potential need to make accounting changes related to purchasing that could adversely affect its 4Q04 announced earlier this month. Be that as it may, the following offers our take on CE's numbers with a full model appended to this report.


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Exhibit 7. Comparative EBITDAs


Taking a look at other time periods, the discrepancy between managements proforma numbers and our reading of the S-1 becomes even more apparent. Of course, managements proforma numbers unveiled during the roadshow are admittedly not a GAAP measure, and they can swiftly take out and include items at will. We welcome the opportunity to delve further into these numbers with management (Although as stated above, we do know that managements proforma $967MM figure for LTM includes $60MM from acquisitions not even closed as of this date!) but for now, we are content that using a consistent approach to Celanese and a peer group yields a more appropriate comparative basis.


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Exhibit 8. Comparison of EBITDA, 2001 LTM

0

200

400

600

800

1000

2001 2002 2003 LTM

EBIT

DA

FGP Mngmt Proforma


Product Portfolio After the spin-off from Hoechst in 1999, Celanese inherited many product lines from Hoechsts holding company. Management has taken many significant steps to reshape the business and divested a few product lines (in fact, the management once wanted to divest the Nutrinova business with no success), as shown below (although the 2004 acrylates sale to Dow is not shown):

Exhibit 9. Portfolio Optimization Since Hoechst Spin-off



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In its current portfolio, Celanese has clear leading positions in most of its product lines, often with very few competitors. In several businesses, Celanese enjoys oligopoly markets or even duopoly markets, allowing Celanese to maintain relatively stable profit margins. Celanese is the largest producer for its key products: acetic acid, VAM monomer and polyacetal. Well discuss more on the market positions in these segments later.

Celanese is also an integrated manufacturer. Its Acetyl segment includes vertically integrated products from methanol, acetic acid, and VAM to such higher value products such as PVOH and emulsions. The Acetate Products, acetic anhydride and acetate tow are integrated product extensions of acetic acid, while Ticonas polyacetal is another derivative of methanol. Even Nutrinovas sorbates products use acetic acid as a raw material.

Along with portfolio optimization, Celaneses management significantly restructured the businesses before Blackstone started became involved. The number of employees were reduced from 15,000 after Hoechsts spinoff in October, 1999 to 9,500 by the end of 2003. Celanese currently employs 9,000 people.

PRODUCT LEVERAGE

Since Celanese concentrates on a few major products, it has significant leverage. It has a very large position in Acetic Acid and VAM with an EPS impact of $0.19 and $0.11, respectively. Polyacetal and acetate tow are also very important to Celanese. Celanese is very highly leveraged to natural gas as most of its products are natural gas based. Based on Celaneses presentation for year end 2003, Celanese purchases about 125 million MMBTU of natural gas and 1.6 billion lbs of ethylene, which is also linked to natural gas. The EPS impact from natural gas is ~$0.51, as shown below:

Exhibit 10. Celanese Major Products and Raw Materials Leverage


In addition, methanol is another very important raw material to Celanese. Although Celanese itself has capacity of over 1.7 MM tonnes, it is still the largest buyer of methanol. As such, Celanese has entered a multi-year sourcing agreement with Southern Chemical starting in 2005. The methanol will be produced from natural gas at a 1.9 MM tonne plant currently under construction in Trinidad and Tobago (please let us know if youd like to participate in our field visit!). This sourcing agreement will meet most of Celaneses internal needs for methanol requirements in North America. Such a sourcing agreement would likely reduce raw material costs significantly ($tens of million).


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Integrated Business

Celanese is a highly integrated chemical producer. The majority of its products are derivatives of methanol, which it both manufactures as well as sources through. Celanese manufactures such intermediates as acetic acid, VAM, and formaldehyde. It also produces downstream chemicals, such as PVOH and Acetic anhydride. The end of the integrated chain includes polyacetal engineering plastics, polyols, acetate esters, acetate tow, and emulsions. Such a high integrated chemical business often has significant raw material and value capturing advantages in the cyclical chemical markets.

Further restructuring plans

Celanese announced several further restructuring plans to improve operating performance. It plans to discontinue acetate filament production by mid05 and consolidate five acetate flake and tow plants into three. Celanese had about 35,000 tonnes of filament capacity in 2003. With the market declining at ~5%/yr (contributed by the casual dressing trend in the U.S.), this business has been underperforming given the environment of significant overcapacity. Celanese expects to achieve a 45% head count reduction with the acetate business restructuring.

Celanese also announced a plan to dispose of the Cyclo-olefin Copolymer (COC) (remember metallocene? Ticonas COC business is a metallocene catalysts application inherited from Hoechst age) and a fuel cell venture. Celanese has been looking for buyers for these two cash drains without much success. The operating loss from these two businesses was ~$47MM in 2003.

While the quick profit by Blackstone has been the talk of town, we believe that they should be credited in part for taking bold steps to restructure a traditional company at a pace that Celaneses management was less likely to achieve by itself.

Acetex/Vinamul Acquisitions

In 4Q04, while Blackstone was busy with the Celanese restructuring and IPO preparation, it spent some time shipping for more assets and agreed to buy Acetex for ~$492 MM (including $231 MM net debt) and Vinamul Polymers (from ICI) for $208 MM.

Acetax, based in Vancouver, Canada, manufactures acetic acid (400 kt/a) and such derivative products as VAM (150 kt/a), PVOH (20.4 kt/a), acetate anhydride (31 kt/a), and polyvinyl acetate (3.7 kt/a). The acquisition of Acetex will significantly strengthen Celaneses acetyl business, especially in Europe (Acetex capacity and business are highly concentrated in Europe). In addition to the acetyl business, Acetex also has a specialty polymers business which manufactures specialty polymers (e.g., EVA hot melt adhesives) and films. Acetex had proforma sales of $499 MM and EBITDA of $60 MM for LTM ending September 04.

Probably more significant is Acetexs JV agreement with National Petrochemical Industrialization Company (TASNEE) to build a world scale acetyl complex in Jubail, Saudi Arabia. With an expected $1 billion investment, this complex is expected to be completed by 2007 with annual capacity of 500,000 tonnes of acetic acid, 275,000 tonnes of VAM and 1.8 MM tonnes of methanol. Acetex will own 50% of the acetyls (Acetic acid and VAM) and 25% of methanol. Acetex also plans to enter long-term methanol supply agreements with the JV to cover its methanol needs in Saudi Arabia and Europe. Acetexs agreement with TASNEE would certainly be important for Celaneses global growth and low cost strategies.

Vinamul Polymers, the emulsion business of National Starch (subsidiary of ICI), manufactures emulsion polymers, including EVA copolymers and vinyl acetate homopolymers, for such applications as in adhesives, paints & coating, textiles, paper. In 2003, Vinamul Polymers reported sales of $335 MM and an operating profit of $18 MM. Since Celaneses current emulsion business focuses mostly in Europe, Vinamuls position in both North America and Europe will strengthen Celaneses emulsion business, which is the higher, value end of Celaneses integrated acetyl chain. Celaneses VAM and PVOH are key raw materials for Vinamuls emulsion polymers.


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Management

Since Blackstone took control last April, Celanese has undergone several management changes from the top to the bottom (including middle management levels). However, the transition is relatively smooth as the key members of the management team were in place even before the announcement of Blackstones acquisition. In fact, CEO David Weidman was an apparent heir to the former CEO Claudio Sonder when he was named COO back in 2002. [Claudio Sonder retired from Celanese on Oct. 31, 2004. No need to pass the hat for a collection; he receives parting presents worth $12.7MM, which in our book is not too shabby for a mid-tier chemicals company!] Both the CEO, David Weidman, and the Executive VP (also President of Ticona) Lyndon Cole, along with the new CFO Corliss Nelson, have been in the chemical industry for many years with executive experiences from such companies as Allied Signal (Honeywell), GE and Koch Industries.

Company Description

Celanese operates its businesses under four segments: Chemical Products (Acetyl), Technical Polymers Ticona (Engineering Plastics), Acetate Products, and Performance Products (Nutrinova). The Acetyl Segment is the largest segment, representing ~69% of the companys total revenue in LTM as of September 2004 (including the announced Acetex/Vinamul acquisition), as shown below:

Exhibit 11. Sales & EBITDA by Segments, LTM Sept, 04

Sales EBITDA


While Celanese has a very diversified product portfolio, the backbone of Celaneses businesses is based on the acetyl products and acetal engineering resins. Most products in the Chemical Products and Acetate Products segment are based on acetyl chemicals or derivatives. Acetal polymers, the flagship products of Ticona, represent the majority of the capacity and revenue of the engineering plastics division, while providing customer and market leverage for Ticonas other engineering plastics. The major products, end-use markets, and competitors are listed below:


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Exhibit 12. Celanese Major Products

Chemical Products

Technical Polymers Ticona

Acetate Products(2)

Performance Products

Major Products

Acetic acid Vinyl acetate monomer (VAM) Polyvinyl alcohol (PVOH)Emulsions Acetic anhydride Acetate esters Carboxylic acids Methanol

Polyacetal (POM) UHMW-PE (GUR) Liquid crystal polymers(Vectra) Polyphenylene sulfide Fortron)

Acetate tow Acetate filament

Sunett sweetener Sorbates

Major End-Use Markets

Paints Coatings Adhesives Lubricants Detergents

Fuel system components Conveyor belts Electronics Seat belt mechanisms

Filter products Textiles

Beverages Confections Baked goods Dairy products

Major Competitors

Rohm and Haas, BASF, Atofina, Methanex, Lyondell

DuPont, Asahi, GE, BASF

Eastman Chemicals Rhodia, Daicel

Holland Sweetener, Nutrasweet

(1)

2003 net sales of $4,603 million also include $49 million in net sales from Other Activities. 2003 net sales of Chemical Products excludes $97 million in inter-segment sales.

(2)

In October 2004, we announced our plans to discontinue filament production by mid 2005 and to consolidate our flake and tow production at three sites instead of the current five.


Celanese is a global business and operates in most of the major geographic regions. While most of its business operations are predominately in North America and Europe, CE is active in terms of Asian expansion. It has developed a presence in Asia with 10 sites there. This represents ~18% of total revenue, as shown below:

Exhibit 13. Celanese Sales and Number of Employees by Region



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Chemical Products (Acetyl) Segment

The Acetyl Segment includes such acetyl derivatives as acetic acid, acetate esters, and vinyl acetate monomer. Celanese is the largest producer in the acetyl chain, and management compared its acetyl leverage to Rohm and Haas acrylic leverage. Celanese also strengthened its position in downstream products and manufactures such higher value products as polyvinyl alcohol and emulsions. Sales by product segments are estimated below.

Exhibit 14. Segment Sales by Product Groups

Note: including internal sales


Celanese and BP are the two key producers of Acetic acid, and each has an ~ 23% global market share. With the announced acquisition of Acetex, Celanese will increase the market share to 27%, clearly the largest producer of acetic acid. The total market share for Celanese and BP has approached 50%, effectively a duopoly market, while the third largest producer Lynodell has less than 10% of the global market, as shown below: Exhibit 15. Global Leading Producers of Acetic Acid

For Vinyl Acetate Monomer (VAM), Celanese is by far the largest global producer with a market share of 22%. Combined with Acetex, the market would be 25%, compared to the next leading producers (Dow Chemicals 10% and Lyondells 8%), as shown below:


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Exhibit 16. Leading Global Producers of Vinyl Acetate Monomer


End Uses.

The major use for Acetic Acid includes VAM, PTA, Acetic anhydride and acetate esters. About half of VAM is used for making polyvinyl acetate for such end uses as textiles, paints, and paper adhesives. A little over half of VAM is used to make polyvinyl alcohol with such growing end use as PVB film layer in laminated safety glass. EVA copolymers and vinyl acrylics are also significant end uses for VAM.

The next major use of acetic acid is for PTA manufacturing in the PET and polyester industries. Acetic acid is used as the solvent for PTA manufacturing and this use has grown with the growth of PET and polyester industries.

Acetic acid is also the key raw material for acetic anhydride (textile and cigarette tow) and solvent acetate esters (solvents for printing inks and coatings), as shown below:


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Exhibit 17. Derivatives and End Uses of Acetic Acid



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Growth

The growth of acetic acid has been driven largely by use of VAM and PTA. The acetate applications (textile and cigarette tow) have been declining, especially in North America. The overall volume growth of acetic acid since 2001 has reached 6%/yr for Celanese, as presented during the Roadshow. Since 2001 is one of the worst years in the chemical industry, we estimated volume growth since 1999, based on the reported volume changes from 2000 and 2001 Celanese 20-F filings. The CAGR volume growth from 1999 to LTM ending September 04 is about 2.5%. According to Tecnon and Celanese estimates, global demand is expected to grow 3-4%/yr, which we believe to be a reasonable expectation for acetic acid. Similar growth potential is expected for VAM and polyvinyl alcohol as well as the acetyl segment.

Exhibit 18. VAM Historical Operating Rate, 1998-2006E

Source: Lyondell, Celanese, Fulcrum Global Partners LLC

Technical Polymers Ticona (Engineering Plastics). Ticonas main products include polyacetal (POM), GUR ultrahigh molecular weight polyethylene (UHMW-PE), liquid crystal polymers, polyphenylene sulfide (PPS), and polyester engineering resins. Polyacetal and GUR are two most profitable businesses in the segment, while LCP enjoyed its glamour days during the electronic boom years before 2001.

According to the Roadshow presentation, the total capacity for engineering plastics is ~2 MM tonnes, including JVs (note: our calculation showed much less capacity based on the S-1 filing and other data we have, even after including 100% share of all the JVs and announcing new capacity additions). This business is truly global with a strong presence in the Asia-Pacific region, mainly contributed by Polyplastics (45% owned by Ticona) and KEP (50% owned by Ticona).

If only counting Ticonas share in the JVs, Ticonas presence in Asia is still significant with ~17% of overall segment sales. Since most of these JVs are not consolidated, the reported business in Asia is only 3% of segment sales, as shown below:


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Exhibit 19. Ticona Business by Region, with and without JV JV counted as 100% (RS) JV counted by CEs share As reported in S-1


The aforementioned JVs are a key contributor to CEs cash flow. Management reported that the cash flow contribution from JVs (also including non-Ticona JVs) increased from $105 MM during the recession year of 2001 to over $160 MM last year, as shown below:

Exhibit 20. Cash Flow from JVs, 2001 - 2004

0

25

50

75

100

125

150

175

200

2001 2002 2003 2004

$ M

illio

n

Dividends Equity Income D&A


Ticonas EBITDA has been recovering following the 2001 recession. In fact, management reported that LTM EBITDA for Ticona (excluding 1-time charges and adding in JVs) would reach $190MM!


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Exhibit 21. Ticona EBITDA Trend, 1999 LTM Sept 04

0

50

100

150

1999 2000 2001 2002 2003 LTM

EBIT

DA


Ticonas engineering plastics is not the largest engineering resin supplier, much smaller than GE, Bayer, and DuPont, as shown below: Exhibit 22. Global Capacity share for Engineering Plastics, 2003


Ticona participates in more specialty type of engineering resins, such as POM, UHMW-PE, LCP and PPS.


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Exhibit 23. Engineering Plastics Map

Note: this chart is based on Ticonas portfolio in 2003. Since then, nylon business was sold to BASF. Also, Celanese announced to dispose its COC business in 2005. Source: Celanese, Fulcrum Global Partners

Ticona has a strong position in higher value added products, and often has a leading global position. It has the #1 position for polyacetal, LCP, and UHMW-PE and #2 position in PPS. The majority of its business is in polyacetal, as shown below:


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Exhibit 24. Ticona Sales by Product


Polyacetal (POM) is the flagship product for Ticonas engineering plastics segment. Developed more than 40 years ago, polyacetal copolymer has been the pride for Celanese and, although introduced two years later, it captured a larger market share than DuPonts polyacetal homopolymer. Globally, Asahi Kasei, BASF, and Polyplastics (45% owned by CE) are other major manufactures with a much smaller market share and less global presence. Global alliances (Ticona with Polyplastics, Mitsubishi, and Korea Engineering Plastics, DuPont with Asahi) and major, new capacities in China have further solidified the duopoly position for Ticona and DuPont.

Although polyacetal continues to face margin deterioration due to commoditization, we expect this business to enjoy strong margins as raw material costs represent less than 50% of the selling price. In fact, raw material costs are only about 30% of the Engineering Plastics segment. Ticona normally has higher EBITDA margin than the total company. For the last twelve months, Ticona had sales of 16% and EBITDA of 19% of total Celanese.

Ticona is also the #1 supplier for the UHMW-PE (GUR) and LCP products. In fact, GUR often enjoys sole supplier status for some highly profitable markets. With over 60,000 tonnes of capacity, GUR is a nice, profitable niche business for Ticona.

End Use Markets The majority of Ticonas plastics products are sold into automotive components, including fuel delivery components, underhood parts and bumpers. Other applications include conveyor equipment, appliances components, electronics parts, and medical devices, as shown below:


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Exhibit 25. Ticona End Use Markets


Growth With the growing use of plastics in such applications as automotive, E&E, industrial, and medical devices, Ticona has enjoyed strong growth over the last few years, especially after 2001, one of the worst years in Ticonas history. Volume increased 11%/yr from 2001 to LTM as of September 04. Even counting the 18% volume decline in 2001, the CAGR from 1999 to LTM as of September 04 was almost 4%. With the general economic recovery and continuous penetration of engineering plastics in various applications, we expect this segment to grow above the GDP.

While this business has been under pressure, mainly due to the weakness in the auto sector (~50% of Ticonas end use market), and price pass-throughs were much more difficult than commodity chemicals, we believe the trend is turning positive. Typical high margins and the restructuring efforts (including disposing the COC business) should help earnings performance in 2005. Natural gas prices and auto build has had significant effects on this segment.

Acetate Products This segment currently includes both acetate tow products and acetate filament. However, the company has already announced plans to discontinue its acetate filament production by mid05. Celanese has about 35,000 tonnes of filament capacity in 2003. With the market declining at ~5%/yr (due to the casual dressing trend in the U.S.), this business has been underperforming in this current overcapacity environment. Celanese also announced it will consolidate five acetate flake and tow plants to three by early 2007. Celanese expects to achieve a 45% head count reduction with the acetate business restructuring.

Celanese is a global leader for acetate tow, the raw material for tobacco filters. Combined with its China JVs, it is the largest acetate tow manufacturer, as shown below:


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Exhibit 26. Global Leading Manufacturers of Acetate Tow Products


Celanese owns 30% of three manufacturing JVs with Chinese state-owned enterprises. Since Asia is the largest market for acetate tow and it is a growing market, Celaneses position in the three JVs puts it at an advantage for market share in China. In 2003, Celanese announced capacity expansion for these JVs by doubling their current capacity. Its major competition of acetate tow is Eastman and Rhodia. However, neither of these companies chose to invest in China.

Acetate tow is a stable business and global growth is very modest. However, Celaneses JVs in China will likely allow Celanese to grow slightly ahead of the industry, especially with capacity expansions. Chinese acetate tow has higher margins than the segment average, and we believe capacity expansions in China will help this segment to improve EBITDA margins.

PERFORMANCE PRODUCTS (NUTRINOVA)

The Nutrinova segment mainly includes Sunett high intensity sweetener and food protection ingredient sorbate products. With $169 MM in sales in 2003, this segment represents about 3% of the total company sales. This business doesnt fit with other pieces of Celaneses businesses, and Celanese has tried to divest this business without success. The major issue in this segment is that the patents for Sunett expire in 2005, and both revenue and earnings are expected to decline significantly after the patents expire.


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Note: In Feb 04, acrylic product lines were sold to Dow Chemical and remaining businesses under

Chemical Intermediates segment was combined with Acetyl to form Chemical Product segment. Source: Celanese, Fulcrum Global Partners LLC


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NYSE: CE

Year Ending September 31, 1Q04 2Q04 3Q04 4Q04E 2002 2003 2004E 2005E($ in millions, except per-share data)Net Sales 1,243$ 1,229$ 1,265$ 1,250$ 3,836$ 4,603$ 4,987$ 5,940$ Cost of Goods Sold 990 960 995 990 3,171 3,883 3,935 4,592Gross Profit 253 269 270 260 665$ 720$ 1,052$ 1,348$

Selling, General, & Administrative 137 140 138 138 446$ 510$ 553$ 653$ Research & Development 23 22 23 23 65 89 91 107Depreciation and Amortization 72 75 75 75 247 294 297 310

Operating Income 93 107 109 100 154$ 121$ 409$ 588$ EBITDA 165 182 184 175 401$ 415$ 706$ 898$ Equity affiliates' income 12 18 17 17 21 35 64 75Interest Expense, Net 28 75 75 75 55 49 253 290Pre Tax Income 77 50 51 42 120$ 107$ 220$ 298$

Income Tax Expense (Benefit) 28 18 18 15 61 60 79 107Minority interest 0 10 2 0 0 0 12 0Net Income - Recurring 49 22 31 27 59$ 47$ 128$ 191$ Weighted Average Shares Outstanding - Diluted 159 159 159 159 159 159 159 159 Diluted Earnings per Share: Net Income - Adjusted 0.31$ $0.14 0.19$ 0.17$ 0.37$ 0.31$ 0.81$ 1.20$

Margin Analysis Cost of Goods Sold 79.6% 78.1% 78.7% 75.0% 82.7% 84.4% 78.9% 77.3%Gross Margin 20.4% 21.9% 21.3% 20.8% 17.3% 15.6% 21.1% 22.7%Selling, General, & Administrative 11.0% 11.4% 10.9% 11.0% 11.6% 11.1% 11.1% 11.0%R&D 1.9% 1.8% 1.8% 1.8% 1.7% 1.9% 1.8% 1.8%Operating EBITDA Margin 13.3% 14.8% 14.5% 14.0% 10.5% 9.0% 14.1% 15.1%Operating EBIT Margin 7.5% 8.7% 8.6% 8.0% 4.0% 2.6% 8.2% 9.9%Pretax Margin 6.2% 4.1% 4.0% 3.3% 3.1% 2.3% 4.4% 5.0%Tax Rate 36.0% 36.0% 36.0% 36.0% 50.8% 56.1% 36.0% 36.0%Net Margin 4.0% 1.8% 2.4% 2.1% 1.5% 1.0% 2.6% 3.2%

Fulcrum Global Partners Note: reflects S-1 filing and Fulcrum Adjustments. Subject to future revisions.Source: Celanese, Fulcrum Global Partners

CelaneseConsolidated Income Statement

Frank Mitsch [email protected]


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NYSE: CE

Year Ending December 31, 1Q04 2Q04 3Q04 4Q04E 2003 2004E 2005E($ in millions, except per-share data)Segment Sales Chemical Products 818$ 808$ 840$ 830$ 3,065$ 3,296$ 4,150$ Acetate Products 172 173 176 175 655 696 750 Technical Polymers Ticona 227 220 213 220 762 880 940 Performance Products 44 45 47 45 169 181 170Other Activities and Intersegment Eliminations (18) (17) (11) (15) (48) (61) (75)Total Consolidated Sales 1,243 1,229 1,265 1,250 4,603$ 4,987$ 5,940$ Operating Income Chemical Products 74 93 94 86 137$ 347$ 425$ Acetate Products 19 20 20 19 13$ 78$ 87$ Technical Polymers Ticona 29 26 25 25 35$ 105$ 120$ Performance Products 9 8 10 9 51$ 36$ 30$ Other Activities (38) (40) (40) (40) (113)$ (158)$ (150)$ Total Operating Income 93 107 109 100 123$ 409$ 513$ Equity affiliates' income 12 18 17 17 35 64 75Interest Expense, Net 28 75 75 75 49 253 290Pre Tax Income 77 50 51 42 109 220 298

Income Tax Expense (Benefit) 28 18 18 15 60 79 107Minority interest 0 10 2 0 0 12 0Net Income - Recurring 49 22 31 27 49$ 128$ 191$ Weighted Average Shares Outstanding - Diluted 159 159 159 159 159 159 159 Diluted Earnings per Share: Net Income - Adjusted 0.31$ $0.14 0.19$ 0.17$ 0.31$ 0.81$ 1.20$

Segment EBIT Margin (%): Chemical Products 9.0% 11.5% 11.2% 10.4% 4.5% 10.5% 10.2% Acetate Products 11.0% 11.6% 11.4% 10.9% 2.0% 11.2% 11.6% Technical Polymers Ticona 12.8% 11.8% 11.7% 11.4% 4.6% 11.9% 12.8% Performance Products 20.5% 17.8% 21.3% 20.0% 30.2% 19.9% 17.6%Total Margin 7.5% 8.7% 8.6% 8.0% 2.7% 8.2% 8.6%

Fulcrum Global Partners Note: reflects S-1 filing and Fulcrum Adjustments. Subject to future revisions.Source: Celanese, Fulcrum Global Partners

CelaneseSegment Analysis


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NYSE: CE Frank Mitsch 212-803-7028 [email protected]

Year Ending December 31, 2002 2003 2004E 2005E($ in millions, except per-share data)Net Income 168$ 148$ 128$ 191$ (Earnings) loss from discontinued operations, net (27) (6) (22) 0Cumulative effect of changes in accounting principles (18) 1 0 0

Adjustments 0 0 0 0Depreciation and amortization 247 294 297 310Special charges (60) 91 42 0Stock-based compensation 5 65 3 0Amortization of deferred financing costs 0 0 95 0Change in equity of affiliates 40 (12) (11) 0Deferred income taxes 2 79 72 0Gain on disposition of assets, net (11) (9) (2) 0Write-down of investments 15 4 0 0(gain) loss on foreign currency 121 155 0 0Changes in operating assets and liabilities (119) (195) (360) 0Income tax payable 0 (195) 59 0Other Items 0 (19) 22 0Cash Flow from Operations 363$ 401$ 323$ 501$ Capital expenditures (203) (211) (206) (240)Acquisition of Celanese, net of cash 0 0 (1,600) 0Business acquisition and investment (131) (18) 0 (700)Proceeds (outflow) on sales of assets (12) 10 5 0Proceeds from disposal of discontinued operations 206 10 117 50marketable securities, net (22) (63) 0 0Distributions from affiliates 39 0 1 0Other (16) (3) 1 0Cash Flow from Investing Activities (139)$ (275)$ (1,682)$ (890)$ Initial Blackstone Capitalization 0 0 641 0IPO 0 0 0 1,000Distribution to Blackstone 0 0 (500) (952)Preferred security issurance and payment, net 0 0 (21) 200Short-term borrowings (repayment), net (141) (20) 1 0Other debt financing, net (3) (48) 2,465 0Purchase of treasury stock (6) (15) 0 0Fees associated with financing 0 0 (197) (70)Dividends Paid 0 (25) (1) 0Other financing Activities 0 0 17 0

Cash Flow from Financing Activities (150)$ (108)$ 2,405$ 178$

Exchange rate effects on cash 7$ 6$ (15)$ -$ Total Cash Flow 81$ 24$ 1,031$ (211)$ Beginning Balance 43 124 148 867Cash Generated/(Used) 81 24 719 (211)Ending Cash 124 148 867 655 Net Cash Flow per Share 0.51$ 0.15$ 4.52$ (1.33)$

Operating EBIT 154$ 121$ 409$ 588$ Operating EBITDA 401 415 706 898

Note: reflects S-1 filing and Fulcrum Adjustments. Subject to future revisions.Fulcrum Global PartnersSource: Celanese, Fulcrum Global Partners

CelaneseCash Flow Statement


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NYSE: CE Frank Mitsch [email protected]

Year Ending December 31, 2002 2003 2004E 2005E($ in millions)AssetsCurrent AssetsCash and Cash Equivalents 124$ 148$ 867$ 655$ Total Receivable 1,129$ 1,311$ 1,401$ 1,401$ Inventories 505$ 509$ 565$ 565$ Deferred income taxes 84$ 67$ 67$ 67$ Assets of discontinued operations 180$ 164$ 5$ 5$ Other assets 45$ 52$ 15$ 15$ Total Current Assets 2,067$ 2,251$ 2,833$ 2,621$ Investments 476 561 555 555Property, Plant, and Equipment, Net 1,593 1,710 1,948 1,948Deferred income taxes 630 606 89 89Other Assets 566 578 615 615Intangible assets, net 1,085 1,108 959 959Total Assets 6,417$ 6,814$ 5,485$ 5,273$ LiabilitiesCurrent LiabilitiesCurrent Debt 204$ 148$ 139$ 139$ Accounts Payable 572 590 583 583Deferred income taxes 11 19 21 21Income taxes payable 421 266 201 201Liabilities of discontinued operations 33 30 12 12Other current liabilities 690 919 798 798 Total Current Liabilities 1,931$ 1,972$ 1,754$ 1,754$ Long-Term Debt 440 489 1,784 2,284Senior subordinated notes 0 0 961 961Senior discount notes 0 0 333 333Deferred income taxes 54 99 244 244Benefit obligations 1,271 1,165 958 958Other liabilities 612 489 478 478Total Liabilities 4,308$ 4,214$ 6,512$ 7,012$ Minority interests 13$ 18$ 402$ 402$ Shareholder's Equity (deficit) 2,096$ 2,582$ (1,342)$ (2,141)$

Total Liabilities and Equity 6,417$ 6,814$ 5,170$ 5,273$

Total Debt 644$ 637$ 3,217$ 3,717$ Cash 124 148 867 655Net Debt 520 489 2,350 3,062

Note: reflects S-1 filing and Fulcrum Adjustments. Subject to future revisions.Fulcrum Global PartnersSource: Celanese, Fulcrum Global Partners

CelaneseBalance Sheet


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Appendix A

IMPORTANT DISCLOSURES AND ANALYSTS CERTIFICATIONS

Fulcrum Global Partners LLC ratings are defined as follows:

BUY A stock that is expected at initiation to produce a positive return of 15% or greater over the 12 months following the initial recommendation. The BUY rating may be maintained following initiation as long as it is deemed appropriate, notwithstanding price fluctuations that would cause the target to fall outside of the 15% return.

SELL A stock that is expected at initiation to produce a negative return of 15% or greater over the 12 months following the initial recommendation. The SELL rating may be maintained following initiation as long as it is deemed appropriate, notwithstanding price fluctuations that would cause the target to fall outside of the 15% return.

NEUTRAL A stock that is not expected to appreciate or depreciate meaningfully over the next 12 months.

Fulcrums Distribution of Ratings

All required disclosures including price charts designating ratings and price targets on all Fulcrum Global Partners LLC-rated stocks are available upon request by contacting [email protected].

Other public companies mentioned:

Dow Chemical (DOW, $48.14, NYSE, BUY) DuPont E. I. de Nemours & Co. (DD, $47.45, NYSE, BUY) Eastman Chemical (EMN, $51.97, NYSE, NEUTRAL) Georgia Gulf (GGC, $47.38, NYSE, BUY) Nova Chemical (NCX, $43.26, NYSE, BUY) Rohm and Haas (ROH, $41.79, NYSE, NEUTRAL)

ANALYST CERTIFICATION

Frank J. Mitsch and James Chen hereby certify that the views expressed in this research report accurately reflect my personal views about the subject company(ies) and its (their) securities. We also certify that we have not been, and will not be receiving direct or indirect compensation in exchange for expressing the specific recommendation(s) in this report.

Unless otherwise noted, all prices are intraday, January 18, 2005.


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For additional Information, please contact your Fulcrum sales representative at (212) 803-9000.

Copyright 2005 Fulcrum Global Partners LLC. All rights reserved. Any unauthorized use or disclosure prohibited.

For private circulation only. This report is a publication of Fulcrum Global Partners LLC and is for informational purposes only and is not intended to be, nor should it be construed to be, an advertisement or an offer or a solicitation of an offer to buy or sell any securities. The information herein, or upon which opinions have been based, has been obtained from sources believed to be reliable, but no representations, express or implied, or guarantees, can be made as to their accuracy, timeliness or completeness. The information and opinions in this report are current as of the date of the report. We do not endeavor to update any changes to the information and opinions in this report. Unless otherwise stated, all views expressed herein (including estimates or forecasts) are solely those of our research department and subject to change without notice.

This report does not take into account the specific investment objectives, financial situation and the particular needs of any specific person who may receive it. Before acting on any advice or recommendation in this report, clients should consider whether it is suitable for their own particular circumstances. The value of securities mentioned in this report and income from them may go up or down, and investors may realize losses on any investments. Past performance is not a guide to future performance. Future terms are not guaranteed, and a loss of original capital may occur.

Fulcrum Global Partners LLC does not have investment banking relationships with the firm(s) whose security is mentioned in this report. Neither the analysts responsible for this report nor any related household members are officers, directors, or advisory board members of any covered company. No one at a covered company is on the Board of Directors of Fulcrum Global Partners LLC. Neither Fulcrum Global Partners LLC nor any of its owners, officers or employees own shares equal to one percent or more of the company in this report.

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