LSB Industries announced yesterday that it has decided to “terminate the formal sale process portion of its strategic review,” which it launched in November 2016. This means it is no longer seeking a buyer for the company itself, although its assets could still be available.
[LSB’s Board] has not been presented with a sale transaction that they feel is in the best interests of shareholders … The Board always remains open and willing to engage in these types of discussions. While we are not sharing specific details of the process, we believe that, at this time, the current outlook in the nitrogen chemical industry is adversely affecting any potential transactions. The Board will, however, continue to work with its outside advisors on evaluating other strategic, financial and operational options.
LSB Industries press release, 07/25/2017
CEO Dan Greenwell put it somewhat more plainly during this morning’s 2Q 2017 earnings call: “In other words, folks may not be leaning in at this point in time and we’ll continue to look at it. I think we need to get a little bit better track record …”
This brings to an end an eight month process that began, in November 2016, when LSB announced that it was looking at “strategic alternatives for the Company, which may include a sale of the Company, a merger with another party, or another strategic transaction involving some or all of the assets of the Company.”
Asset sales, however, are still on the table. Last month, LSB sold its Marcellus shale natural gas properties, netting $16.25 million, and the company disclosed plans to offload another $5 million-worth of assets in 2017 during the 2Q 2017 earnings call. Today’s low nitrogen prices, with ammonia less than $200 per ton at Tampa this week, make it unlikely that any of LSB’s ammonia plants might be for sale.
Given LSB’s history over the last two years – with the El Dorado brownfield going horribly over-budget, share price crashing, emergency financing, and sale of the climate control division – it is not surprising that the CFO today needed to stress his view on the company’s solvency:
Importantly, I would like to emphasize that with our total liquidity at the end of June at approximately $107 million and given the positive impact of our incremental ammonia production capacity and improving operations, we believe that we have more than sufficient liquidity to fund our cash needs over the next 12 months, even if this low selling price environment persists.
LSB Industries, 2Q 2017 earnings call, 07/26/2017
Unfortunately, it seems that the stock market had hoped for a successful sale: following the announcement, LSB’s stock plummeted again (down 28% at the time of writing, in the 24 hours since yesterday’s announcement). The stock market is no doubt irrational: LSB’s market capitalization is now barely over $300 million, which is less than half what it just spent on the El Dorado expansion.
When Dan Greenwell talks about the need to get a “better track record,” he’s talking about the plants’ on-stream rates. LSB’s plants, old and new, are trying very hard to generate cash in a very low-price nitrogen market: the second quarter on-stream rates for LSB’s three ammonia plants, were 100% at Cherokee, AL, 87% at El Dorado, AR, and 78% at Pryor, OK.
If those don’t sound like impressive on-stream rates to you, all I can say is that they’re a huge improvement on past performance.