Activist Starboard targets Honeywell spin-off Solstice after failed megadeal
Fund pushes for $100mn in cost cuts and sees growth potential in nuclear business as AI drives power demand
Activist hedge fund Starboard Value has built a stake in Honeywell spin-off Solstice Advanced Materials, as the US speciality chemicals group fights to rebuild credibility with shareholders after an aborted megadeal.
Starboard is pushing for improvements to boost Solstice’s share price, according to people familiar with the matter. The company’s stock nearly doubled after being spun off from Honeywell almost a year ago, but most of those gains were erased when its $14.5bn cash-and-stock deal to buy Element Solutions was announced in early July.
Solstice is a speciality chemicals heavyweight, producing compounds used in air conditioning, insulation and refrigeration. It also has a nuclear division, which is a critical part of the uranium supply chain, and an electronics-focused business that supplies chipmakers.
The hedge fund wants the company to focus on execution in its core refrigerants and nuclear businesses and cut roughly $100mn in corporate overhead, the people added. It sees growth potential in Solstice’s nuclear business, which supplies an important chemical used in the enrichment of uranium, at a time when the AI-driven power boom could spark a nuclear renaissance.
Solstice took the rare move of calling off its combination with Element in late August in advance of a crucial shareholder vote after investors expressed doubts about the logic of merging two businesses with limited overlap. The deal also required Solstice to pay a higher earnings multiple for Element than where it trades, raising concerns among investors about Solstice’s capital allocation decisions.
Shares in Solstice had their worst trading day when the Element deal was unveiled this summer, and remain 26 per cent below their pre-announcement level. Starboard owns several hundred million dollars’ worth of stock, the people said, putting it among Solstice’s top ten shareholders. Solstice’s stock is still up 14 per cent on its first trading day, giving it a market capitalisation of nearly $9.6bn at Monday’s close.
Starboard’s founder and chief executive Jeff Smith is expected to unveil the investment on Tuesday at the 13D Monitor Active-Passive Investor Summit, an annual gathering of activist investors, where he is the lead speaker.
Starboard, with $8.2bn under management, is among Wall Street’s most formidable activist investors, having targeted large corporations, including Bristol Myers Squibb, Salesforce and Tylenol maker Kenvue.
Solstice and Starboard did not immediately respond to requests for comment.
Solstice is one of only a few companies outside of Russia and China capable of completing the initial step of enriching uranium, which is likely to provide a significant boost to earnings growth ahead of a 2028 US government deadline to stop importing Russian enriched uranium. Analysts at BMO Capital Markets said the nuclear division could achieve a higher valuation as a standalone business.
As Solstice nears its anniversary as a public company, the emergence of Starboard on its shareholder register will add to a rocky first year for its chief executive David Sewell. Solstice separated last October from parent company Honeywell as part of its three-way split.
Sewell was recruited by Honeywell to lead Solstice ahead of the spin-off early last year. Previously he oversaw building product group WestRock’s merger with Smurfit Kappa before leaving as chief executive when the deal closed. Sewell also serves on the board of chemicals group Huntsman, where Starboard picked a proxy fight in 2022.