NEW YORK, Dec. 22, 2011 /PRNewswire/ -- Sandell Asset Management's Chief Executive Officer Thomas E. Sandell sent today the following letter to the Board of Directors of Tronox Incorporated:
Board of Directors
3301 NW 150th Street
Oklahoma City, OK 73134
Attn: Thomas J. Casey, Chairman and Chief Executive Officer
As you are aware, funds managed by Sandell Asset Management Corp. ("Sandell") own approximately 1.8% of the total outstanding shares of Tronox Incorporated ("Tronox"). As an investor in Tronox, Sandell has supported Tronox and its management since prior to its emergence from bankruptcy earlier this year, and we fully support its announced transaction with Exxaro. However, we believe Tronox's management must be more aggressive in taking the steps we believe are necessary to enhance shareholder value in the near term. The company remains significantly undervalued, and we believe there are several strategies the company should pursue to maximize shareholder value. We believe that the realization of these strategies could yield a valuation of $183–$194 per share, representing an upside of approximately 56%–66% over current valuations.
We believe that Tronox should focus on pursuing the following catalysts to maximize its value: (1) optimize its pro forma balance sheet; (2) relist its shares on the NYSE; (3) significantly increase research analyst coverage of Tronox; (4) improve the liquidity of Tronox shares by effecting a stock split; and (5) complete the acquisition of the Exxaro mineral sands business.
With regard to the balance sheet, in its October investor presentation and related conference call, Tronox indicated that its pro forma balance sheet post-Exxaro transaction would be "conservative" and, while stating its intention to adopt a dividend policy consistent with its peers, noted only that its free cash flow would provide Tronox with an "opportunity" to return additional cash to shareholders or to make potential high-return investments. We believe instead that, promptly following completion of the Exxaro transaction, Tronox should lever its balance sheet to between 1.0 and 1.5 times mid-cycle EBITDA and use the proceeds to pay shareholders a large special cash dividend. We believe that Tronox can pay a dividend ranging from $24 to $43 per share to its shareholders while maintaining strong credit metrics.
In addition, Tronox's management should take steps to increase the visibility of the company. We believe that relisting on the NYSE will not only improve the liquidity of Tronox shares but also lead to an immediate increase in research coverage by large firms.
While we strongly support the Exxaro transaction, which will provide full vertical integration and unparalleled free cash flows and create what we believe will be the strongest player in the industry, no preliminary proxy statement has been filed in the three months following announcement of the transaction and we are concerned that the process has stagnated. Tronox's management must take steps to ensure that the transaction stays on track to close in the first half of 2012.
Enclosed is a white paper presentation containing a more detailed explanation of the levered strategy that we are recommending Tronox undertake and a financial analysis of its potential effects. Please do not hesitate to contact us with any questions you may have. We look forward to continuing our discussions with you and working with Tronox in pursuing a direction that will maximize the value of the company for all of its shareholders.
Thomas E. Sandell
Chief Executive Officer
For further detail, Sandell's presentation on Tronox is available at http://www.sandellmgmt.com/News/Tronox_Presentation_Dec-22-2011.pdf.
SOURCE Sandell Asset Management