Andrew Left of Citron Research has a new target in his sights, and the company’s stock is tumbling.
This time around, Left is going after The Chemours Co., a spin-off of DuPont.
Left thinks that a class-action lawsuit could bankrupt Chemours, which he says has too much debt and not enough on hand to fund its defense.
Chemours fell by almost 10% when the report dropped before it began to climb back. As of 3:34 EST, the stock is down just 2.1% at $8.61 a share.
In a release from Chemours, the company said it “strongly refutes the report by Citron Research.”
Left’s allegation is that Chemours was spun off to protect DuPont from the litigation.
He said that the firm has $20 million in assets on hand in order to fund a defense, according to filings, but in his assessment that won’t be nearly enough. Here’s Left (emphasis added):
No one has an exact dollar figure yet on the extent of the liabilities of this debacle. While Chemours only accounts for $20 million of overhang on its balance sheet, most Wall Street analysts estimate the liability to fall more inline with the $500 million figure.
But we always hear the value $5 billion being thrown around by social activists like the “Keep Your Promises DuPont” campaign, which has pegged environmental costs just for Parkersburg WV at $1 billion. After speaking in depth with community activists, Citron believes that even $5 billion may be a low number…
Additionally, Left pointed to Chemours’ debt load of $4 billion, which is roughly as much as 5.5 times its earnings – much higher than other companies in its sector.
Left concluded that the firm will most likely go bankrupt because of the mix of issues.
“Citron thinks the most likely scenario is that Chemours goes bankrupt within 18 months … just long enough for the new Dow/DuPont to split into three companies, and create separate entities that will all fight for indemnification from this financial toxic dumpsite of liabilities,” said the report.
In its response Chemours strongly refuted these claims. The firm said:
Upon becoming an independent company less than one year ago, Chemours immediately launched a five-point transformation plan to improve Adjusted EBITDA by$500 millionover 2015 levels and reduce its leverage ratio to approximately three times in 2017. Chemours continues to execute on all aspects of its plan by reducing cost, optimizing its portfolio, growing market positions, refocusing investments and enhancing its organization. The company has taken swift and decisive action under this plan and has already delivered significant cost reductions while strengthening its liquidity position. Chemours is making major investments in key growth initiatives, and continues to progress the strategic review of its Chemical Solutions business.
- Google Finance