M&G Frustrated with Methanex

Purpose of Transaction.

The Reporting Persons have been supportive shareholders since 2007 but have become repeatedly frustrated with the market valuation of the Issuer, which the Reporting Persons believe does not reflect the Issuer’s intrinsic value.

The Reporting Persons are supportive of the current progressive dividend policy of the Issuer, but given the current share price is significantly below the replacement cost of its assets (estimated by the Issuer to be US$1,100 per tonne (source : Methanex Investor Presentation February 2018), the Reporting Persons’ view is that :

any and all surplus capital outside the proposed modest capital expenditures targeted towards the issuer’s Chilean assets should be solely directed towards share buybacks until the share price appreciates beyond the replacement cost of the Issuer’s assets which based on the company’s own disclosure equates to as much as double the current share price;

 

that every share purchased at a discount to the replacement cost of the Issuer’s assets accretes significant value to all shareholders equally; and

 

there should be no cash retained on the balance sheet beyond what is required to maintain the existing portfolio of assets to a high standard (which the Reporting Persons estimate conservatively to be a maximum of $200m).

If, as a result of these actions over the medium term, the share price still does not reflect at least the Issuer’s replacement cost of its assets then the Issuer should undertake a strategic review to either high grade the portfolio by selling assets that can be realised at a price materially above the value implied by the Issuer’s current equity value and use the proceeds to buy back shares or sell the whole business in order to realise its value.

The Reporting Persons note that the Issuer has in the past undertaken significant share buybacks at valuations below replacement cost, resulting in significant subsequent value accretion for shareholders. With this experience and history in mind, the Reporting Persons would reiterate this to be the only sensible strategy for the Issuer in the short term.”

Link: https://www.sec.gov/Archives/edgar/data/886977/000119312518124756/0001193125-18-124756-index.htm


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