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Dolphin III Seeks RTK/RNF Value Maximizing Strategic Alternatives Process; A Rapid Spin-Off Of RTK's Wood Fibre Businesses -- Sees Significant RTK Share Upside

Stocks in this article: RNFRTK

GREENWICH, Conn., June 26, 2014 /PRNewswire/ -- Dolphin Limited Partnership III, L.P. and certain affiliates ("Dolphin III"), a long-term sizable holder of Rentech, Inc. (NASDAQ symbol:  RTK or the "Company"), today announced that it is informing RTK's shareholders of certain strategic initiatives Dolphin has advocated to RTK as a result of its interaction with the Company during the past 18-months in order to enhance the value of Rentech Nitrogen Partners, L.P.  (NYSE symbol:  RNF) and generate a significant increase in RTK's current share price:  (i) the rapid spin-off vs. an IPO (which is subject to a customary discount, underwriting fees and market risk) in a Master Limited Partnership ("MLP") of its wood fibre processing businesses; and (ii) the establishment of a strategic alternatives process to maximize value for RTK's 59.8% interest in RNF.  Dolphin III believes that a successful strategic alternatives process that drives RNF to approximately $30 per unit would generate a near 50% increase in RTK's current share price.

A spokesperson for Dolphin III added, "With an expeditious spin-off of the wood fibre processing businesses, the strategic alternatives process should explore:  (i) methods to efficiently recombine the remainder of RTK (23.25 million RNF units, its General Partner and sizable federal and state NOL's) with RNF to create a more sizable and liquid MLP; (ii) repurchasing RNF units to capitalize on the severely depressed price (currently a significant discount to the replacement value of its facilities); and (iii) a sale to a strategic acquirer. 1  

From October 2012-- May 2013, Dolphin III and its outside advisors presented a plan that, in its view, would have efficiently recombined RTK and RNF in a new MLP (the "Dolphin III Plan").  Since then, with RNF down more than 50% and greatly underperforming its peers, lower projected cash distributions, and larger RTK NOL's, the review should also include a re-examination of the Dolphin III Plan.  (The Dolphin III Plan is summarized in the attached addendum.) 1   More recently, Dolphin III's outside advisors also identified potential opportunities for RTK and RNF to create value with and without a recombination.

Reasons for Dolphin III's AdvocacyDolphin III, with the assistance of prominent outside advisors, advocates these positions after 18-months during which it communicated extensively with RTK and its outside advisors as well as consideration given to other facts and developments 1

  • RTK's historical business plan has utilized cash distributions from RNF to invest in enterprises unrelated to RTK's core RNF Nitrogen fertilizer business and which, in the aggregate, has generated a sizable cumulative deficit for RTK and reduced value on an absolute and relative basis for RNF holders; 2 ,3
  • RNF remains captive inside RTK, which should be resolved to maximize value - the Dolphin III Plan addresses this.  Dolphin believes that greater consideration is required of RNF's relative size (approximately 1.0 million annual metric tons of Ammonia, UAN and liquid and granular Urea - excluding other products and the Pasadena, Texas, Agrifos facility - and an approximate $.9 billion current TEV) to that of its competitors, premium pricing from its mid-corn-belt location and proximity to customers and natural gas.  Resolving the highly inefficient RTK/RNF structure would enhance RNF as an attractive acquisition candidate -- especially to cross-border competitors 2;
  • RTK and RNF appear significantly undervalued on absolute and relative terms; --Since December 31, 2012, the percentage decline in RNF's total return (unit price plus distributions) -- is approximately (-50%) vs. (-2%) for the average total return of the seven other publicly traded peers.  RNF's percentage decline is over 2 x's that of the next worst performing peer 3; --RNF's current TEV approximates 50% of the estimated net replacement value of its facilities when certain competitors have indefinitely delayed greenfield projects 4, highlighting the  acquisition value of existing strategic operating assets;-- The pre-tax intrinsic value of RTK's net assets, with RNF units at $16.32 and RTK's other net assets valued at $1.63 per share, is approximately $2.95 per share.  Yesterday, RTK closed at $2.43 5; --The pre-tax intrinsic value of RTK's net assets with RNF units at $30 (a TEV approximating 75% of RNF's estimated net replacement value) is approximately $4.05 per share, more than a 65% increase from yesterday's closing price 5.--The public analysis provided by RNF for 2014 EBITDA indicated a cash distribution of approximately $2.40 per unit, or over a 14% current yield -- materially greater than any other public sector MLP or corporate peer. 3,5

The Dolphin III spokesperson concluded, "RNF does not appear to be large enough to be standalone, but given certain favorable attributes, including the "transportation cost advantage" of its East Dubuque, Illinois facility and current industry and capital market dynamics, Dolphin believes it would be attractive, in particular, to certain domestic and cross-border strategic acquirers.  Utilizing the current implied pre-tax market value of the wood fibre processing businesses in a spin-off, together with the other net assets (approximately $470 million or $1.63 per fully diluted RTK share), an efficient sale of RNF (under the Dolphin III Plan, or an alternative plan) at $30 per unit, would generate total pre-tax value to RTK shareholders of approximately $3.63 per share*, nearly a 50% increase from yesterday's $2.43.  The Dolphin III Plan appears to add over 20% of value to RTK shareholders standalone or in a sale.  Importantly for all RTK shareholders and RNF unit holders, today the Dolphin III Plan may initiate a sale of the recombined entities to a strategic acquirer."

To learn more about the Dolphin III Plan investors may refer to the attached addendum and the contacts below.

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