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Bought 3,000 Olin, OLN, at 20.41
OLN operates in 3 segments, Chlor-Alkali, Metals, and Winchester. My interest is in the Chlor-Alkali, which is a commodity chemicals business and very cyclical, characterized by periods of over supply. In recent years, this industry has undergone what participants describe as "capacity rationalization," meaning a number of plants have been shut down. OLN has an agreement to acquires Pioneer, PONR, which operates only in the Chlor Alkali industry. They see substantial synergies and cost savings in the acquistion.
While the combined entiry will be 3rd in Chlor Alkali, it will be a substantial factor in Bleach, which has generally shown higher and more stable margins. OLN regards itself as a low cost producer of Chlor Alkali products. Taking all of this together, I think that if and when Chlor-Alkali demand increases, the business will be very profitable, because supply and demand will be very closely matched.
OLN has addressed the underfunding of its Pension Obligations, and is reducing inventory in its Metals (brass) segment, creating inventory profits.
Metals and Winchester have low margins, while Chlor-Alkali has high margins. This makes it a little difficult to do a segment analysis. I tried a number of approaches and think OLN is worth somewhere between 25 and 33 per share.
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