Long: Chemtura Corp

Executive Summary

Over the past several years, the management team at Chemtura has done a great job of

divesting non-core assets, improving its balance sheet, cutting costs, and streamlining its

business to become a pure-play on industrial specialty chemicals. Yet, these actions seem

to have gone unnoticed as the company still trades at a significant discount to its peers.

The recent announcement of the sale of its AgroSolutions business will allow the

company to both pay off debt, resulting in annual interest expense savings of $13.6MM,

and initiate a stock repurchase tender offer for approximately one-third of the outstanding

shares. We expect this tender offer to be completed at a 20% premium to the current

stock price, which we believe will be finalized by year-end 2014.

After the tender offer is completed, we expect to company to continue to pursue the sale

of the remaining businesses. CEO Craig Rogerson has a history of monetizing companies

and has openly (and recently) stated that he could look to pursue this option with

Chemtura. Our sum-of-the-parts analysis supports 40-100% upside from the current stock

price.

Even without a sale of the business or its remaining pieces, we still believe there is

attractive upside in the stock. The company has made significant investments in its

remaining two industrial businesses, Industrial Performance Products (IPP) and Industrial

Engineered Products (IEP), and each have their own specific catalysts upcoming that will

drive future growth. We believe that as investors take notice of this growth and the value-

creation events the company has recently completed, the company will be valued more

in-line with its peers, which would result in 60% upside to the current stock price.

Recently weak results in the IEP business have been overblown as the company has cut

costs and has already seen improvements in this business during 2014. We project this

improvement to continue for the rest of the year and into 2015.

Investment Thesis

We believe that Chemtura Corp is a misunderstood company whose business today is much

different than it was only a few years ago. Once an over-leveraged, broad-based chemicals

company, Chemtura has been transforming its business through asset divestitures to improve its

balance sheet and become a pure-play on the industrial space. The company’s recent

announcement of its divestiture of the AgroSolutions business will enable the company to reach

a net-cash position for the first time since returning to the public markets in 2010, and will set up

the company to pay down expensive debt and return cash to shareholders. We project that the

company will use the proceeds of AgroSolutions transaction, along with excess cash on the

balance sheet, to pay down $200MM in debt (which will reduce interest expense by $13.6MM

annually) and to initiate a tender offer to repurchase approximately one-third of the current

shares outstanding by year-end 2014. We also project that the tender offer will need to be

completed at a premium to the current stock price, which will enable investors to see sizeable

returns (20%) over the intermediate-term while limiting the downside in the stock.

Additionally, we believe that this is still the early innings of the company’s goal to unlock

shareholder value – CEO Craig Rogerson has a history of monetizing companies and has openly

stated that the rest of the company or its individual pieces could be sold. Our sum-of the-parts

analysis will show that the company is currently valued at a discount to its peers and similar

transactions, which supports the idea that additional value-creating transactions could occur.

These transactions should result in an additional 40-100% upside (after the tender offer is

completed) for shareholders that could be realized over the coming year. Even if these types of

events do not come to fruition, the company has been making big investments its two remaining

industrial segments which should start to pay off in the coming year, and could result in a re-

valuation of the company based solely on its own merits.

Business Overview

Chemtura Corporation traces its roots to its predecessor, Crompton & Knowles, which was

founded in 1900 and entered the specialty chemicals market in 1954. In the mid-1990’s, the

company decided to exclusively focus on specialty chemicals, and completed the acquisition of

Witco Corporation in order to grow this business. In 2005, the company merged with Great

Lakes Chemical Corporation and changed its name to Chemtura.

In 2009, with an over-leveraged balance sheet and little liquidity, the company filed for Chapter

11 bankruptcy reorganization. Following the subsequent Chapter 11 filing of its Canadian

subsidiary, the company re-emerged from bankruptcy protection and went public in the latter

half of 2010. At the time of the IPO, the company was still over-leveraged and lacked the focus

necessary to compete effectively.

CEO Craig Rogerson made it a priority to divest non-core assets in order to improve the balance

sheet and re-focus the business going forward. In April of 2013, Chemtura closed on the sale of

its Antioxidant & UV Stabilizers business for $200MM. Later that year, the company closed on

the sale of its Consumer Products segment for $315MM. Proceeds from these transactions were

used to improve the balance sheet and return capital to shareholders (the company has bought

back $110MM of stock to date). In April of this year, the company announced that it had reached

an agreement to sell its AgroSolutions business for $1 billion, with an expected closing in the

second half of 2014.

The ending result of these moves is a company with ample liquidity and an improved focus on

the industrial segment of the market. The company has made major investments over the past

few years in its remaining two businesses, Industrial Performance Products (IPP) and Industrial

Engineered Products (IEP), and the second half of 2014/FY2015 is the time in which these

investments will start to be realized.

CHMT’s Industrial Performance Products (IPP) segment focuses on the production of synthetic

lubricants, additives, and urethanes. The lubricant products are used in variety of industrial

applications, but the biggest driver of this business is the automotive industry, where the

company produces petroleum additives and gear/engine lubricants. Growth in this segment will

come from the expansion of its high-end synthetics business (where there is only one other

competitor, who normally does not sell its products into the market) and its investments in

production capacity.

In the Industrial Engineered Products (IEP) business, Chemtura competes in an Oligopoly, with

the other two major players being Albemarle Corporation and Israel Chemicals Limited (ICL).

The company’s products in this segment involve the use of bromine, which exists as bromide

salts in crustal rock within the earth. Although Chemtura only controls one-sixth of the bromine

market, it is the clear leader the bromine foams market (flame retardants) and mercury emissions

prevention. When bromine is isolated, it can be combined with other molecules during the

production of polymers to form materials with excellent flame retardant properties (such as

foams). When bromine treated materials burn, they produce hydrobromic acid which interferes

with the oxidation and combustion reactions of fire. Bromine can also be used to treat coal

during power generation, and has been shown to reduce Mercury emissions by up to 98%.

Additionally, bromine intermediaries are used during the manufacturing of numerous industrial,

consumer, and energy products. It can be used to produce very dense fluids used in the oil and

gas industries, as well as organometallics, which are a special group of metals used in

polymerization reactions. Examples of this would be in the production of glass coatings,

semiconductors, LEDs, and pharmaceutical intermediates.

Once a broad-based chemicals company with little direction, Chemtura has become one of the

leaders in the industrial specialty chemical industry. This focus was reinforced earlier this year

when the company announced the sale of its agricultural chemicals segment.

AgroSolutions Transaction a Key Catalyst for Tender Offer

On April 17, 2014, the company announced that it had reached an agreement with Platform

Specialty Products Corporation to sell its AgroSolutions business, the company’s agricultural

chemicals segment, for $1 billion ($950MM in cash and $50MM in stock, which will have a 6-

month lock-up period attached to it). Because Chemtura has significant NOLs it can use to offset

taxes on the sale, the company plans to bring in proceeds of about $850MM out of the $950MM

in cash it will receive. Management does not anticipate any regulatory hurdles to the deal and

expects to take $15-20MM of stranded costs out of its business once the sale occurs.

This transaction will return the company to a net-cash position, something that company has not

seen since it re-emergence from bankruptcy in 2010. We believe that part of the reason for the

company’s discounted valuation as compared to peers is due to its previously weak balance

sheet. Once the AgroSolutions transaction is complete (second half of 2014), we believe that

investors will re-value the company more in-line with peers due to its improved liquidity

position.

The catalyst of greater significance as a result of the AgroSolutions divestiture is the company’s

plan to use the proceeds from the transaction, along with excess cash on the balance sheet, to pay

down expensive debt and return cash to shareholders. On the debt side of the balance sheet, the

company plans to pay off $200MM of debt. The company’s 7.875% Notes become callable at

104% of par in September of 2014, and we project that this will be the first piece of the capital

structure which the company pays off. We also project that the company will then use an

additional $100MM to pay off a portion of its 5.75% Notes. Below is the company’s pro-forma

balance sheet after debt pay downs:

Capitalization ($ in Millions)

Before After After Debt Paydown

Cash $ 400.00 $ 1,250.00 $ 1,046.00

PSP Stock $ - $ 50.00 $ 50.00

Cash & Equivalents $ 400.00 $ 1,300.00 $ 1,096.00

5.75% Notes $ 450.00 $ 450.00 $ 350.00

Term Loan $ 206.00 $ 206.00 $ 206.00

7.875% Notes $ 100.00 $ 100.00 $ -

Other Debt $ 32.00 $ 32.00 $ 32.00 Total Debt $ 788.00 $ 788.00 $ 588.00

Net Debt/(Cash) $ 388.00 $ (512.00) $ (508.00)

After the debt transactions are completed, the company will save $13.6MM in annual interest

expense (96MM shares outstanding, which we believe will be reduced to approximately 67.7MM

shares by the end of this year).

After speaking with management, we also project the company to repurchase between $700MM

and $1B of stock by year-end 2014. The company has already begun to repurchase stock in the

open market, buying $110MM of stock since 2011, but has openly acknowledged that it will

need to look at other options in order to repurchase a significant amount of the float after the

AgroSolutions transaction is completed. Management recently noted that they are looking at

various options to return this cash, which include a Tender Offer, a special dividend of up to $7

per share (27.5% return), or some combination of the two. Considering the company has stated it

believes its value is about $40 per share and the fact that our analysis supports this conclusion,

we believe that the company will decide to repurchase about 1/3 of the current outstanding

shares through a tender offer in order to complete its desired share repurchase activity. Chemtura

is in essence 100% institutionally owned, with most of this ownership coming from investors

with long-term investment horizons. Based upon this, combined with our sum-of-the parts

valuation and the fact that the company currently trades at a discount to its peers, we believe that

the company will have to tender the stock at a premium to its current price, which we forecast to

be in the $30 range, in order to complete a transaction in the $700MM-$1B range. This event

would provide investors a 20% return by year’s end without any re-valuation of the company.

Tender Offer Scenarios ($ in Millions)

Low Base Bull

Current Shares Outstanding 96MM 96MM 96MM

Total Repurchase Amount $ 700.00 $ 850.00 $ 1,000.00

Tender Offer Price $ 30.00 $ 30.00 $ 30.00

Shares Repurchased 23.3MM 28.3MM 33.3MM

Remaining Shares Outstanding 74.7MM 67.6MM 64.7MM

Though the recent announcement of the AgroSolutions unit sale is an exciting inflection point for

the company, we believe that there is additional upside in the stock after the tender offer is

completed. Once this transaction is finalized, the company will have gone from an over-

leveraged, broad-based chemicals play to a streamlined, niche-focused industrial chemicals

company. Not only have the recent divestitures helped reduce costs and given the company a

better focus going forward, they also make the company a more attractive investment for both

public equity investors as well as other companies as an acquisition target.

Additional Value Remains after AgroSolutions Transaction

Even though the tender offer is an attractive scenario for shareholders in its own right, we

believe that the real value in Chemtura is found in the business that remains after the sale.

After major investments over the past few years, the company’s remaining two businesses,

Industrial Performance Products and Industrial Engineered Products, are poised for growth

starting in the back half of 2014. As performance improves and capital expenditures normalize,

we believe that these two businesses alone will produce over $200MM in free cash flow

annually, which gives us confidence in the company’s plan to return excess cash to shareholders

this year.

Source: Chemtura Investor Presentation

Both the IPP and IEP segments have their own specific catalysts that should drive future growth.

On the IPP side, pending capacity expansion and technological innovation should drive both

revenue growth and improved operating margins. Chemtura has decided to turn its focus in this

segment to the synthetic lubricants business, and has been making big investments over the past

several years that should now start to pay off. Synthetic lubricants increase the viscosity of motor

oils, which allow for longer oil change ranges or for use in higher-end vehicles. Exxon Mobile is

currently the only other major player in this space, but Exxon has historically not sold its

synthetics out into the market, but instead put it in its own Mobile One product. This creates a

dynamic where Chemtura is the “only game in town” and therefore can get better pricing on its

product, thus increasing its operating margins.

On the revenue side, the company will benefit from its investments in added capacity. Its new

synthetic lubricants facility in the Netherlands (which is located close to one of its biggest

customers, BP) opened at the end of 2013 and its synthetic lubricant facility in China will come

online in 2014. Management has stated that customers are “chomping at the bit” for more

capacity to come online and expects to utilize the new capacity very quickly after it is up and

running. Management expects the IPP business to do about $1.3 billion is sales by 2016, with

margins in the 18-19% range. After reviewing the new capacity and completing a sensitivity

analysis under various scenarios, we believe that it is very plausible that management hits this

goal, and are therefore using it as our base-case assumption.

In the IEP business, Chemtura competes in an Oligopoly, with the other two major players being

Albemarle Corporation and Israel Chemicals Limited (ICL). Although Chemtura only controls

one-sixth of the bromine market, it is the clear leader the foams market (flame retardants) and

mercury emissions prevention market. In the foams business, 2013 was a challenging year due to

the fact that ICL aggressively entered the market by offering reduced prices across the board.

This dynamic/weak performance is one of the reasons for the recent downward pressure on the

stock, but we believe that the extent of this downward pressure is unjustified. Though pricing

pressure would normally be a significant negative event for Chemtura, this risk is offset by the

company’s push into its new technology, the Emerald Innovation series, which commands higher

prices and is an area in which Chemtura is clearly ahead of the competition from a technological

standpoint. The Emerald series provides the same flame retardant benefits of other bromine foam

products, but does so in a way that is cleaner for the environment. Both Dow Chemical and

BASF have recently adopted the technology and Europe could ban the use of the previous

technology, HBCD, by 2015. Also, because of the weak results in 2013, the company took steps

to take costs out of the business, including the elimination of many management positions in

which it found redundancies. Even if the adoption of the new technology is not as fast as we

project, the company recently noted that pricing has improved for HBCD this year. This, along

with cost cuts made by management last year will help this business improve results in 2014 over

2013’s disappointment.

The other major piece of Chemtura’s IEP business is the use of bromine in trapping mercury

emissions. When the company’s GeoBrom product is used to treat coal that is used in power

generation, mercury emissions are typically reduced by 98%. Though there is no catalyst for

growth in this business during 2014, 2015 should be a big year for GeoBrom due to the Mercury

and Air Toxics Standards (MATS) which will then go into effect. These standards, which require

US coal power generation and oil fleets to meet certain emission standards or close down by

April 2015, were being contested on the grounds that the EPA did not have the power to enact

such a law. On April 29 of this year, the courts ruled that the EPA does indeed have the power to

enact the law and can proceed with its 2015 implementation. This announcement can be

considered a major win for Chemtura; with the high costs associated with retrofitting a power

plant, Chemtura’s GeoBrom product provides a strong, value-oriented alternative. Additionally,

this removes the risk that the regulation could be pushed out into 2016 or beyond. This new

regulation’s impact on Chemtura cannot be understated; this is an area in which there has been

very little investment by customers over the last several years, and the new mercury emission

standards should provide a multi-year runway of growth for the GeoBrom business.

The “wildcard” for the IEP business is the possibility to close on the acquisition of Solaris

ChemTech. In September 2012, Chemtura announce an agreement to purchase from Solaris

certain assets used in the manufacturing and distribution of bromine and bromine chemicals for

cash consideration of $142 million and the assumption of certain liabilities, but the companies

have been unable to gain government approval to close the transaction. If Chemtura is able to

close this deal, it would be an unexpected, major catalyst for the stock as it would increase the

supply of bromine available to the company. Because of the company’s inability to close on this

deal, we are assigning no value to a positive outcome in our analysis.

As we stated above, we believe management’s assumptions for the IPP business are reasonable

based upon increased capacity and growth in its synthetics business. On the IEP side, we expect

a rebound in both revenues and margins in 2014 based upon the cost savings initiatives, growth

in the company’s Emerald Innovation series, and pending Mercury Control Standards taking

shape as we enter 2015. These two remaining units alone will produce between $150MM and

$175MM in free cash flow (6-7% free cash flow yield) through FY2014, at which point free cash

flow generation should improve as the increased investment period ends and the company

realizes the benefits of its recent investments. As these projections come to fruition over the

coming year, along with the share repurchase tender offer, we believe that investors will re-value

Chemtura in-line with its peers. Below, we have provided our outlook for the business along

with comparable company multiples:

Pro-Forma Income Statement

2014 2015 2016 Industrial Performance

Products

Sales $ 1,028.0 $ 1,130.7 $ 1,300.4

Operating Income 123.4 158.3 208.1 Depreciation &

Amortization 30.0 32.0 34.0

EBITDA 153.4 190.3 242.1

Industrial Engineered

Products

Sales 851.2 893.7 920.6

Operating Income 102.1 134.1 138.1 Depreciation &

Amortization 43.0 43.0 43.0

EBITDA 145.1 177.1 181.1

Chemtura AgroSolutions 359.2 - -

Operating Income 71.8 - - Depreciation &

Amortization 12.0 - -

EBITDA 83.8 - -

Total Company EBITDA 400.3 385.4 441.1

Operating Income 202.3 202.4 256.1

Interest Expense 38.0 25.0 25.0

Earnings Before Taxes 164.3 177.4 231.1

Taxes - 17.7 57.8

Net Income 164.3 159.6 173.4

Free Cash Flow $ 169.3 $ 179.6 $ 208.4

Diluted Shares Outstanding 94.0 67.7 67.6

Earnings Per Share $ 1.75 $ 2.36 $ 2.56

Chemtura is actually a collection of many unique assets that fall under two business segments, so

we will use a blended valuation of Albemarle (to represent IEP) and New Markets Corporation

(to represent IPP) to come up with our valuation of Chemtura.

Public Comps

2014 2015 2016 Albemarle Corporation

EPS Estimates $ 4.32 $ 4.91 $ 5.42

P/E Multiple 16.8x 14.8x 13.4x

EBITDA Estimates ($ Millions) $ 594.0 $ 650.0 $ 646.0

EBITDA Multiple 10.6x 9.6x 9.4x

New Market Corporation

EPS Estimates $ 18.29 $ 19.88 $ 21.46

P/E Multiple 21.3x 19.6x 18.2x

EBITDA Estimates $ 397.0 $ 423.0 $ 451.0

EBITDA Multiple 12.8x 11.9x 10.9x

Valuation (Based Upon 2016 Estimates)

Low Base High Chemtura Corp

EPS Estimate $ 1.66 $ 2.56 $ 3.08

P/E Multiple 13.4x 15.8x 18.2x

Value $ 22.24 $ 40.45 $ 56.06

EBITDA Estimate ($ Millions) $ 360.0 $ 441.0 $ 488.0

EBITDA Multiple 9.4x 10.1x 10.9x

Value $ 42.83 $ 61.45 $ 78.43

Average Valuation $ 32.54 $ 50.95 $ 67.24

PV Discounted at 10% $ 26.89 $ 42.11 $ 55.57

Upside/Downside 5.5% 65.1% 117.9%

We believe that using a blended valuation of Albemarle and New Markets Corporation is the

best way to capture both pieces of Chemtura’s business. We also believe that the proper way to

value Chemtura is to discount back our 2016 projections because 1) by 2016, the company will

have used their remaining NOLs, so we will be valuing the company based off a normalized tax

rate, 2) valuing the companies like-for-like in 2016 helps us to adjust for different growth rates,

and 3) by the beginning of 2016, all activities related to the sale of AgroSolutions, the tender

offer, and company-specific catalysts will be completed, providing us a full year of realistic

future business results (note: for the next 15+ years, Chemtura will be able to use $60-70MM in

NOLs annually, which equals $1 per share in earnings before taxes after share repurchases are

completed). As you can see, when Chemtura becomes valued in-line with peers, we believe the

stock should be valued 65% higher than its current price at today’s fair value, and we also see

little downside in the stock at its current levels.

Further Monetization Could Occur

CEO Craig Rogerson has made no secret to the fact that he may look to further monetize the

business after the AgroSolutions transaction is completed, even hinting at this notion during a

recent conference presentation. This kind of action would make sense considering Mr.

Rogerson’s background – prior to his role at Chemtura, Mr. Rogerson was the CEO of the

specialty chemicals company Hercules, and was the driving force behind the company’s sale to

Ashland in 2008. Before his role as CEO, Mr. Rogerson served as the general manager of

BetzDearborn, the industrial water treatment business that Hercules sold to General Electric in

2002. Mr. Rogerson also has a vested interest in this outcome; he currently owns approximately

500,000 shares of the company’s stock, an additional 315,000 shares that have not yet vested,

and 400,000 options that are yet to be exercised (with an average strike price around $18).

Because of the potential for further asset divestitures, or even the possible sale of the entire

company, we believe that it is best to value Chemtura by using a sum-of-parts-analysis. Below is

a comparable analysis for each of the company’s remaining segments:

Industrial Performance Products Comparables

Type Date EBITDA Multiple Notes Lubrizol Acquisition Buyout Mar-11 7x Acquired by

Berkshire Hathaway New Market Corporation Current

Public Company

Jul-14 12.8x

Hercules Sale Company Sale

Nov-08 8.5x Bought by Ashland

Based upon comparable transactions, we will use a 7.0-12.8x EBITDA range to value the IPP

unit.

Industrial Engineered Products Comparables

Type Date EBITDA Multiple Notes Albemarle Corporation Current

Public Company

Jul-14 10.6x

Israel Chemicals Limited Current Public

Company

Apr-14 11x

Amcol Acquisition Company Sale

Mar-14 11x Bought by Minerals Technologies, 8.5x EBITDA multiple after synergies

Based upon comparable transactions, we will use an 8.5-11.0x EBITDA range to value the IEP

unit. As you can see we believe the value of the remaining two businesses are worth about $2.4

billion. When we combine these values with the AgroSolutions sale and adjusting for cash, debt

and pension obligations, we could see the equity value of the business being about $4 billion,

although the current enterprise value is only $2.8 billion.

Based upon the individual values of the remaining segments of Chemtura, we have provided a

sum-of-the-parts valuations based upon the sale of the entire business, in which we include about

$30MM in projected cost synergies in the transaction, which we believe to be conservative as

$15-20MM are the stranded costs from AgroSolutions:

And as you can see from this slide, if the company were to sell the business and if we were to

include $30MM in synergies in the sale, with $15-20MM of this coming from the stranded costs

of AgroSolutions), we get a value of about $36 on the business.

Valuation

Below, we have provided our probability weighted valuation for the company:

Probability-Weighted Valuation

Low Base High Weight % Going-Concern $ 26.89 $ 42.11 $ 55.57 80.0% Company Sale $ 19.26 $ 36.00 $ 53.52 20.0%

Weighted Valuation $ 25.36 $ 40.89 $ 55.16

Upside/Downside -0.5% 60.3% 116.3%

Overall, we believe that the value of Chemtura’s business is worth about $41, representing 60%

upside from its current price. We believe that over the next 9 months, investors will realize 20%

Sum-of-the-Parts Analysis (Company Sale)

Low Base Bull Low Base Bull Low Base Bull

Industrial Performance Products 160.00$ 190.00$ 210.00$ 7.0x 9.0x 12.8x 1,120.00$ 1,710.00$ 2,688.00$

Industrial Engineered Products 125.00$ 177.00$ 185.00$ 8.5x 9.6x 11.0x 1,062.50$ 1,699.20$ 2,035.00$

Total Segment Value 285.00$ 367.00$ 395.00$ 7.7x 9.0x 11.3x 2,182.50$ 3,409.20$ 4,723.00$

Less: Corporate Expenses (including

$30MM Synergies) (60.00)$ (60.00)$ (60.00)$ 7.7x 9.0x 11.3x (462.00)$ (540.00)$ (678.00)$

Plus: Cash & Equivalents 545.00$ 395.00$ 245.00$

Less: Debt (588.00)$ (588.00)$ (588.00)$

Less: Pension Obligations (239.00)$ (239.00)$ (239.00)$

Total Equity Value 1,438.50$ 2,437.20$ 3,463.00$

Shares Outstanding 74.7MM 67.7MM 64.7MM

Price Per Share 19.26$ 36.00$ 53.52$

Upside/Downside -24.5% 41.2% 109.9%

2015 EBITDA Valuation Multiple Value ($ in Millions)

of this value through a stock repurchase tender offer, with the rest occurring in 2015 as the

company improves results and possibly looks to monetize the rest of the business.

Risks

Risks to our investment thesis include:

1. The inability to close the AgroSolutions deal, which would remove the ability for the

company to pay down debt and/or initiate a large share repurchase. As a mitigate to this

risk, the AgroSolutions business, which has been growing revenues at 9-10% annually, as

a going-concern piece of Chemtura would add about $120MM in EBITDA to our 2015

forecast and would result in 2015 EPS of about $2.50 (company would currently be

trading at 5x 2015 EBITDA and 9x 2015 EPS, both below peer averages). Platform

Specialty Products has already raised $300MM of the needed cash for this transaction,

and is also backed by a large investment from Bill Ackman, which we believe to be a

positive for Platform’s ability to raise the additional funding for the deal.

2. The ability for the company to complete a tender offer of its stock at a price lower than

our projected range, which would reduce the intermediate-term upside of this event. As a

mitigate to this risk, the company would be able to buy the stock at a cheaper price and/or

purchase more shares than we are currently projecting, which would then raise our

EV/EBITDA and EPS valuations going forward. We believe that our current sum-of-the-

part analysis is still justified and that management will continue to look to monetize its

assets, meaning the company would still be able to eventually realize its full value.

3. The company’s inability to drive sales growth out of its IEP foams business going

forward. This risk would impair our valuation of the company, but we do note that even

under a flat revenue scenario, operating income will improve in 2014 due to cost cutting

initiatives that have been put into place.

4. The company is susceptible to raw material cost inflation which could have a negative

impact on margins. Though a risk, we believe that our “low” case scenario takes into

consideration this possibility.

5. Increased regulatory scrutiny - in 2014, California passed legislation requiring tests to be

done with regards to the health and safety risks of materials used in upholstered furniture.

This could directly affect Chemtura’s bromine foam products used in its flame retardant

upholstery filling line. If these products are found to be unsafe, it could negatively

impact sales, and additionally cause tighter regulation of the company’s products across

the country. Management has been open to address this issue, and sees little possibility of

the company’s products being affected by the new regulation.

6. A delay in the opening of the company’s China synthetics facility would push out the

ramp-up in revenues of the synthetics business due to capacity constraints.

Catalysts

Catalysts for our investment thesis include:

1. The closing of the AgroSolutions deal.

2. The announcement or more details surrounding the use of AgroSolutions proceeds/the

announcement or more detail around the share repurchase tender offer.

3. Improved results from the IEP foam business or the announcement of further adoption of

the Emerald Innovation series product line.

4. The successful opening of the company’s China synthetics plant in 2014.

5. The announcement of the closing of the Solaris ChemTech transaction.

Conclusion

Chemtura is well past its prior issues – bankruptcy, an over-leveraged balance sheet, and a lack

of focus. Today, the company is a streamlined, industrial chemicals company with emerging new

technologies. The balance sheet has been cleaned up, now to the point where the AgroSolutions

divestiture gives us the catalyst necessary to make sizable returns over the intermediate term.

Over the next year, we expect more investor to take notice of the improvements at Chemtura,

which should cause the stock to be re-valued in-line with its peers. We also believe that there is a

realistic chance that company puts itself up for sale over the coming year or looks to sell off its

individual assets. In both scenarios, we should see additional upside in the stock over the next 12

months.