W.R. Grace Corporation (NYSE: GRA)

W.R. Grace Corporation (NYSE: GRA)
Current Price (5/1/15): $97.50
Price Target: $137.30
Mitesh Amarthaluru (Duke ’17), Venkata Amarthaluru (Wharton ‘15, Engineering ‘15), Nicholas Liu (Wharton ‘15,
Engineering ‘15), John Lu (Wharton ‘15, Engineering ‘15), Anubhav Maheshwari (Wharton ‘15, Engineering ‘15)
Video Pitch Link: http://tinyurl.com/WRGrace
May 4th, 2015
I. Company Overview
Business Description
§  Industrials Company operating in catalyst technologies, materials technologies, and construction products
§  Exited Chapter 11 on Feb. 3, 2014 after 13 years in bankruptcy due to asbestos litigation
§  Management has announced plan to spin-off Grace’s construction products business in 2016 with New
Grace retaining the catalysts technologies and materials technologies businesses
§  Idea Generation: Circle of Competence à 1. Industrials Sector 2. Special Situations 3. Engineering Expertise
Operating Segments
§  Catalyst Technologies: Largest player (33% share) in oligopolistic industry with secular tailwinds
§  Construction Products: 2nd largest player (8% share) for concrete admixtures industry, Largest player (18%
share) for cement additives; industry fragmentation resulting from localized monopolies
Financials
2014 Revenue
andBreakdown
EBIT Breakdown
2012 Sales
Current Price $97.50 Market Cap $7.0bn Enterprise Value $8.5bn EBITDA Margin (2014) 17.8% EV/TTM Adj. EBITDA 11.2x EV/(EBITDA-­‐Capex) 13.1x As of May 1st, 2015
2
II. Investment Thesis
W.R. Grace is a recession-resistant cash compounder with clear paths to value realization.
1.  Grace operates in an oligopolistic industry with high barriers to entry, market share stability,
and high ROIC levels.
2.  Grace maintains a deep competitive moat and recession resistant business due to customer
captivity, specialized products, and technical expertise.
3.  Consensus mispricing exists in the marketplace because of Grace’s post-bankruptcy status,
understatement of excess assets, and overlooked margin improvement potential.
4.  There are clear pathways to value realization from the upcoming spinoff, effective capital
allocation, and increased investor transparency.
Recommendation: Buy Grace stock pre-spin with the intention of selling Grace Construction Products stock following
its spin-off in 2016 and hold New-Grace over at least a 3 year period to realize a projected asymmetric equity upside
of 40.08%.
SOTP Equity Value
Cumulative Upside
Value CAGR over 3 Years
$ 109.84 $
12.06%
3.87%
3
137.30
40.08%
11.89%
III. Industry Overview: Catalyst Technologies
Oligopoly with high barriers to entry
§ 
Pricing discipline in oligopoly
§ 
W.R. Grace is the market leader in an
oligopolistic industry where the top 4 players
have 89.2% market share
§ 
Catalyst technologies companies limit capacity
expansion to 1-2% per year with a focus on value
accretive pricing
Increasing pricing allows a more effective
EBITDA lift increasing volume
Capacity (thousand tons)
(x) Utilization
Volume
Price ($/ton)
Revenue
Price Change
EBIT Loss
EBIT Margin
Barriers to Entry
§  Economies of Scale: 45% of cost structure is
fixed, providing high operating leverage
§  Demand Side Barriers: Customer specific
products create high switching costs
§  Technology Barriers: Specialized technology
with continued R&D investment necessary
Current
Additional
Sales
Capacity
444.5
163.5
85.0%
85.0%
377.8
139.0
$3,300.0
$2,970.0
$1,246.8
$412.8
(10.0%)
($124.7)
$124.7
30.2%
Price Decrease
Additional Capacity Necessary
(10.0%)
36.8%
“Albemarle attempted volume competition in 2012-2013
unsuccessfully and recognizes importance of pricing discipline.”
–Anonymous, Goldman Sachs Equity Research Analyst
4
III. Industry Overview: Catalyst Technologies
Evidence of barriers to entry
Refining catalyst market share stability
1.  Market shares for oligopolistic players have
shifted by less than 5% since 2010
2.  Adj. ROIC (5 year average) of 31.5% for Catalyst
division consistently exceeds 8.5% cost of capital
3.  Value enhancing pricing industry structure where
price is not sacrificed for market share increase
Operational Segment ROIC: Catalyst technologies outperformance
5
III. Industry Overview: Macro View
W.R. Grace benefits when crude prices fall and experience limited effects when prices rise.
Crude Price v. Refinery Utilization
GRA Sales v. Refinery Utilization
Crude Price v. GRA Sales
3 Year Avg. Correlation v. Time
1.  Compiled using US Energy Information Administration Statistics (LWC Estimates)
6
IV. Business Model: Competitive Advantages
Customer Stability
Refinery
Products are non-substitutable to customers
and small percentage of cost:(2)
›  Essential input for crude breakdown and
specialized to customers
›  For refining catalysts, for barrel of oil
refined, $0.15-$0.25 in catalyst cost
›  With total refinery cost of $4.75 per barrel,
catalyst cost represents ~4.2% of total
costs in the refinement process(3)
›  1% of cement producers costs are additives
1.  Source: The Catalyst Group
2.  Source: Anonymous, W.R. Grace Finance Manager
3.  PBF Energy May 2014 Presentation
Focus on core competencies has enabled Grace
to become a market share leader in its products
Specialty
§ 
§ 
Long Standing Customer Relationships:
›  Extended 3 year contract life for catalysts
›  Customer renewal rate of 70% at contract
completion(1)
›  Largest customers have specialized
products and have worked with Grace for
decades
Future
§ 
Leading Market Positions
WR Grace Market Position
FCC
HPC EB Resid
HPC FB Resid
HPC Distillate
HPC Hydrocracking
Polyethylene (PE) Catalyst
PE Catalyst Support
Polypropylene (PP) Catalyst
PP Process Technology Licensing
PE / PP Single Site Catalyst
Chemical Catalysts
Zeolite Technology
Biofuels Catalysts
MTO Catalysts
Legend
★
Market Leader
☆
Strong Position
☑
Developing Position
☐
No Position
Source: GRA 2014 Investor Day Presentation
7
2008
★
★
★
☑
☑
★
★
☑
☐
☑
☑
★
☐
☐
2014
★
★
★
☆
☆
★
★
★
★
☆
☆
★
☑
☑
IV. Business Model: Competitive Advantages
Technical Barriers to Entry
§ 
§ 
Technical Advantages
§ 
Grace’s products are non-commodity with
individual customer customization
New catalyst products have research life cycles of
at least 1 year
Technical advantages of Grace’s product results
in economic uplift of $0.40/bbl(1)
Competitive Base
C/O Ratio
6.9
6.4
76.0
77.4
1.0
1.0
LPG, wt%
18.3
18.6
Gasoline
54.2
55.3
LCO, wt%
17.2
16.9
6.8
5.7
Conversion, wt%
Dry Gas, wt%
“Extensive research by my team is necessary to create
superior technology that meets specific needs. Product
customization is a requirement for us to succeed.”
–Anonymous, Senior Principal Engineer, W.R. Grace
Bottoms, wt%
Economies of scale from R&D expenditures
1.  Christophe Chau, Rosann Schiller, W.R. Grace Catalagram Spring 2015
8
W.R. Grace
IV. Business Model: Recession Protection
Recession protection
§ 
§ 
Above-cycle utilization
Through the 2008 recession, Grace experienced
only a 15% revenue reduction while increasing
operating margins due to pricing power
Overall improvement in margins since 2010
highlights operating leverage, sustained ROIC,
and nimble supply chains
W.R. Grace Key Operating Metrics
3500
40.0%
3000
35.0%
$mm
25.0%
2000
20.0%
1500
15.0%
1000
10.0%
500
5.0%
0
0.0%
EBITDA Margin %
§ 
Above average utilization allows the business to
benefit from increased operating leverage
§ 
Difficulty of supply coming online provides a
favorable supply/demand backdrop (demand
expected to grow 3.0% annually)
*A lb emarle IR P res entatio n
**C hemical W eek
***Letz s ch C o ns ulting
****T he C atalys t G ro up
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Revenue
Industry has a current utilization of 94.6% while
normalized cyclical utilization is 85.0%
Key
Market Size ($mm)*
FCC Cost ($/mt)**
Sales Volume ('000s mt)
Annual Capacity ('000s mt)***
Utilization
Typical Utilization****
Deviation from Norm
30.0%
2500
§ 
Gross Margin %
EBIT Margin %
9
Value
$2,622.0
$3,300.0
794.5
839.5
94.6%
85.0%
11.3%
V. Value Drivers: Construction Products Spin-off
1. Spin-off of construction products provides multiple pathways to value realization.
1.  Multiples normalization to industry peers results in 33.2% upside
§ 
§ 
§ 
§ 
Specialty Catalysts comps trade at EV/FY14 EBITDA of 8.7-14.0x
Construction Products comps trade at EV/EBITDA of 6.7-9.3x
Grace trades at EV/EBITDA of 11.2x due to disproportionate drag from construction
On a SOTP+NOL basis, Grace should be trading at a multiple of 13.0x, an upside of 33.2%
2.  Leverage moved to Construction Products spin-off, delevering New Grace cap structure
§  New Grace is anticipated to have Net Debt/Adj. EBITDA of 2.0-2.5x, while Grace
Construction Products is projected to have Net Debt/Adj. EBITDA of 3.0-3.5x
3.  Refocused business models
§  Spin-off will allow for investment decisions to be optimized based on each respective company,
improving management focus and cost productivity
§  Grace Construction Products requires significantly more capex relative to New Grace, requiring
a different financing model
10
V. Value Drivers: Effective Capital Allocation
2. W.R. Grace is properly incentivized to continue implementing effective capital allocation.
Distressed Activist Ownership
Incentivized Management
§  Activist investors
own 27.7% shares
§  Fred Festa, CEO and Chairman of W.R. Grace,
has a $14.9mm position in Grace common stock
§  Festa’s background at GE and Morgenthaler
Private Equity Partners shapes his ideology of
shareholder value enhancement
§  According to the DEF14A, key executives must
maintain 3-5x base salary in the form of stock
§  Engaged shareholder
base improves capital
allocation and creates
value enhancement
Business Reinvestment
Share Repurchases
§  In Feb. 2014, the board announced a share
repurchase program of $500mm ending Jan. 2015
§  In Feb. 2015, the board announced a similar
program to buy back an additional $500.0mm
§  Grace’s $557.5mm cash position provides dry
powder to execute share repurchases
§  $400mm adjusted annual FCF provides additional
funds to for shareholder friendly practices
1.  CapitalIQ Public Ownership Detail - Form13F
2.  Definitive proxy statement – DEF 14A
3.  WR Grace: The End of an Empire- The Wall Street Journal
§  W.R. Grace only operates in core competency
businesses where they have a #1 or #2 position.
§  Grace has demonstrated accretive bolt-on
acquisitions through 22 successful investments
from 2003 through 2014
§  Disciplined Investment Criteria: Strategic fit
(technology, market access), hard cost and capital
synergies, and risk-adjusted return.
11
V. Value Drivers: Net Operating Loss Carryforwards - Tax Asset
3. W.R. Grace’s overlooked NOLs provide additional upside to SOTP valuation.
§ 
§ 
§ 
§ 
W.R. Grace has accumulated a $1.8 billion NOLs ($670mm - Carryforward from emergence of
bankruptcy, $632mm - PI DPO settlement, $490mm - Warrant settlement)
Lack of significant change in ownership during the bankruptcy process allowed W.R. Grace to
maintain a substantial amount of its NOLs (governed by IRC Section 382 Limitation)
The cash tax rate is anticipated to remain in the range of 10-15% through 2018
NOLs have a NPV of $0.4 billion adding an additional 5.7% upside to SOTP valuation
2 0 15 E
2 0 16 E
2 0 17 E
2 0 18 E
2 0 19 E
2020E
2 0 2 1E
Revenue
EBIT
US EBIT
Interest Payments
US EBI (Pre-Tax Income)
N O L D C F
3375.1
667.0
200.1
-59.3
140.8
3511.3
710.0
213.0
-59.3
153.7
3651.0
754.9
226.5
-59.3
167.2
3793.4
801.5
240.5
-59.3
181.1
3937.7
838.2
251.4
-59.3
192.1
4083.3
874.9
262.5
-59.3
203.1
4229.3
911.3
273.4
-59.3
214.1
Beginning US NOL Balance
NOL Carryforw ard Usage
Ending US NOL Balance
1800.0
-140.8
1659.2
1659.2
-153.7
1505.5
1505.5
-167.2
1338.3
1338.3
-181.1
1157.2
1157.2
-192.1
965.0
965.0
-203.1
761.9
761.9
-214.1
547.8
35%
35%
35%
35%
35%
35%
35%
Beginning DTA Balance
DTA Change
Ending DTA
630.0
-49.3
580.7
580.7
-53.8
526.9
526.9
-58.5
468.4
468.4
-63.4
405.0
405.0
-67.2
337.8
337.8
-71.1
266.7
266.7
-74.9
191.7
Discount Factor
Discounted Value
0.922
45.4
0.850
45.7
0.784
45.9
0.723
45.8
0.666
44.8
0.614
43.7
0.566
42.4
Statutory Tax Rate
Discount Rate
NPV of NOLs ($mn)
8.46%
408.1
WACC
12
V. Value Drivers: Margin Expansion Opportunities
4. W.R. Grace has a visible pathway and credible track-record for margin expansion.
§ 
Spin-off of GCP provides restructuring opportunities to reduce operating costs
› 
› 
Improved management focus and lower corporate costs drive operating margin expansion
Based on 2015 Q1 results, adjusted EBIT Margin has already increased 130 bps yoy
Further Margin Expansion Opportunities:
1.  Continued investment in targeted R&D creates better product mix with improved pricing power
due to innovative product launches in an up-cycle (+100 bps)
› 
Pricing power will be further driven by secular demand growth, especially for FCC Catalysts
2.  Aggressive supply chain repositioning based on flexible global operations enables margin
expansion at the operating income level (+100 bps)
› 
Grace has benefited from increase in demand in key global markets
3.  Cycle-bottom prices for major inputs such as rare earth metals, especially Lanthanum Oxide, reduce
production costs (+100 bps)
› 
At $1.03/kg (2014), Lanthanum Oxide is at the lowest price point since 2008
"Improving petchem ROA should come from underlying operational improvement
and better capital allocation."
–Dan Loeb, Third Point, 2014 Q1 Investor Letter
13
VI. Mispricing and Catalysts
Mispricing
§ 
Extended 13 year Chapter 11 process due
to asbestos litigation has resulted in limited
coverage for Company besides investment
positions by distressed funds
› 
§ 
Sell side overlooks excess assets including
excess cash ($500.0mm) and excess
investment in unconsolidated affiliate
($173.8mm)
Provides additional 8.4% upside
› 
§ 
› 
Management’s ability to improve the margin
post-restructuring is not modeled into sellside valuation
Margin expansion by 300 basis points
provides 16.7% incremental returns
Share repurchases driven by incentivized
management and distressed activist funds
Monetization of JV with Chevron provides
reclassification of excess asset into core
operations
Increased Investor Transparency
› 
› 
14
Separation of GCP will provide natural
shareholder turnover, lead to normalized
multiples expansion, and address “double
cyclicality” valuation challenges
Shareholder Friendly Measures
› 
Margin improvement is underestimated
› 
Spin-off of Grace Construction Products
› 
Excess Asset Value
› 
§ 
§ 
Post-Reorganization Equity
› 
§ 
Catalysts
Increased coverage of orphan stock after
extended Chapter 11 process will increase
investor demand
Simplified capital structure due to PI DPO
reduces situational complexity
VII. Valuation
W.R. Grace has multiple pathways to unlock value for an asymmetric risk-reward.
Incremental Return
Cumulative CAGR
I.  Sum of the Parts
16.1%
5.1%
II. Net Operating Loss Carryforwards
+ 5.7%
6.8%
III. Share Repurchase
+ 1.6%
7.3%
IV. Margin Expansion
+ 16.7%
11.9%
40.1%
11.9%
15
VIII. Key Risks
Key Risks & Mitigants
1.  Spin-off of construction materials business may not receive approval.
§  Panelist of distressed and activist funds will help push through a vote
§  Management under Fred Festa will focus on value accretive shareholder measures
2.  Cyclicality of construction end markets could result in depressed sales.
§  Spin-off will help separate out cyclical construction from non-cyclical specialty catalysts/materials
§  Improving non-housing construction provides favorable backdrop for construction business
3.  W.R. Grace’s Defined Benefit Plan is underfunded by $473.1 million.
§  Margin of safety even with additional funding contribution provides asymmetric risk-reward
§  Shift to Defined Contribution Plan will provide more feasible course of action
4.  Asbestos lawsuit result in excess payments to Property Damage claimholders.
§  Management incentive is to provide accurate, if not aggressive, estimates of asbestos liability to avoid
loss recognition in later years
§  Hard cap of $80mm on amount of additional liability that can be payable to claimholders
16
IX. Thank You!
Primary Research
Current Employees
Anonymous – Senior Principal Engineer
Rosanne Schiller – Director of Marketing
David Joseph – Investor Relations
Tania Almond – Investor Relations
Special Thanks To:
Justin Ang
Sahil Khetpal
Dominic Waltz
Competitors
Matthew Juneau – Albemarle Investor Relations
Consultants
Anonymous – The Catalyst Group
Important Disclosures: Certain accounts managed by us are currently long
W.R. Grace. We may buy and/or sell shares of W.R. Grace in the future for the
accounts managed by us without notice, and we are under no obligation or
agreement to take, or not take, any action or restrict our actions in any manner.
This is not a recommendation to buy or sell shares. Our views are subject to
change without notice and we may trade in any manner, whether consistent or
inconsistent with this recommendation. The information provided is from public
sources. We have not independently verified this information and we make no
representations as to the accuracy or correctness of any such information. We
undertake no obligation to update any information below.
Sell-Side
Anonymous – Goldman Sachs
Anonymous – Credit Suisse
17
X. Appendix: Bankruptcy Overview
Chapter 11 Reorganization
§ 
W.R. Grace filed for voluntary Chapter 11 on April 2, 2001 as a result of asbestos litigation
§ 
On February 3, 2014, W.R. Grace emerged from bankruptcy
§ 
Effects:
1.  Two asbestos trusts under Section 524(g) of Bankruptcy Code
1.  PI (Personal Injury) Trust-no further obligations
2.  PD (Property Damage) Trust broken into non-ZAI and ZAI (attic insulation product) claims
2.  Company has accrued unresolved non-ZAI PD claims that are probable and estimable
1.  Non-fixed claims
2.  Obligated payments to PD trust every 6 months based on non-ZAI PD Claims allowed by bankruptcy
court during preceding 6 months + interest + PD Trust expenses
3.  ZAI PD Claims obligated for fixed payment of $30mm February 3, 2017 and 10 contingent payments
of $8mm per year to ZAI PD Account during 20 year period beginning on February 3, 2019, with
payments due only if assets of ZAI PD account fall below $10mm during preceding year
1.  Liability recorded for fixed deferred payment
2.  Not recorded for contingent payments
3.  Secured by 77.4mm shares of new issuance common stock
18
X. Appendix: Summary of Variant View
Market Perspective
Our Perspective
§ 
Extended Chapter 11 process has resulted
in extended financial and reputational
damage to Company
§ 
Reorganized Company has minimal
exposure to asbestos litigation and long
term contract redemption rates are steady
§ 
Alternative fuel sources provide tail risk for
WR Grace’s operations
§ 
Secular tailwinds from renewed focus on
heavy oil refinement will drive volume sales
due to inelastic demand
§ 
Bearish outlook on energy-related industries
§ 
W. R. Grace benefits from lower crude
prices due to increased catalyst demand by
refineries
§ 
Market is focused on short term EPS vs.
earnings quality
§ 
§ 
Sell-side operates in sector specific
pigeonholes of chemicals vs construction
Due to FIFO Inventory accounting, there
is a lag until low input costs are realized in
COGS, which increase gross margin
§ 
SOTP valuation provides valuation clarity
19
X. Appendix: Specialty Building Materials & Packaging Industry
Demand Driven Building Products
§ 
§ 
High Value Packaging Products
§ 
Commercial construction recovery in US
and emerging markets infrastructure buildout creating demand for specialty building
materials
Increasing quality and sustainability of
construction projects relies on advanced
products
› 
› 
§ 
§ 
§ 
Waterproofing Systems
Roofing products
Conformation to Food & Beverage industry
regulations
Focus on design for convenience and
sustainability
Solutions address shift away from BPA
epoxy resins towards “green products”
Products are integrated into customer
plants and supply chains
Consumer Packaging Sealants Market Size
3,000
%
CAGR: 4.1
$millions
2,500
2,000
1,500
1,000
500
0
2012
1.  BCC Research
20
2013
2014
2019
X. Appendix: Specialty Construction Products Industry
Highly Localized
§ 
Cement Additives
Marketshares
18%
71%
§ 
§ 
Concrete Admixtures Market
Share
15%
6%
8%
5%
7%
70%
Sika
BASF
Othes
BASF
Grace
Sika
Others
Global Cement Trends
6,000,000,000
120.00
5,000,000,000
100.00
4,000,000,000
80.00
3,000,000,000
60.00
2,000,000,000
40.00
1,000,000,000
20.00
0
0.00
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
Grace
§ 
Production
21
Unit value ($/t)
2020
2030
§ 
Specialty cement products are critical for cement
manufacturers to enhance quality
Expansion in cement capacity from NA
construction revival, emerging market growth
Matching Supply/Demand characteristics imply
stable, growing prices
Grace’s advanced products cater to efficiency,
environmental concerns
Price
Primary products are Cement Additives and
Concrete Admixtures
Fragmented industry with few dominant players
›  Grace has manufacturing facilities across
the world, creating high quality global brand
Cement Pouction (metic tons)
§ 
Ongoing Secular Global Growth
X. Appendix: Valuation
Sum of the Parts
Base Case
Segment
New Grace
New GCP
Base Case + Share Repurchases
2015E EBITDA
$
$
Low
652.3
177.3
Multiple
High
10.0x
8.0x
Core Enterprise Value
Plus: Excess Cash
Plus: Excess Investments
Plus: Value from NOLs
Adjusted Enterprise Value
Less: Debt
Total Equity Value
9.6x
EV
Low
High
12.0x $ 6,523.1 $
10.0x $ 1,418.1 $
11.6x
7,941.2
500.0
173.8
408.2
$ 9,023.3
2,015.8
$ 7,007.5
Fully Diluted Shares Outstanding (MM)
Less: Share Repurchase Program
Total Shares Outstanding
$
$
7,827.7
1,772.7
$
New Grace
New GCP
9,600.4
500.0
173.8
408.2
10,682.4
2,015.8
8,666.6
72.6
0.0
72.6
SOTP Equity Value
Cumulative Upside
Value CAGR over 3 Years
Segment
New Grace
New GCP
2015E EBITDA
$
$
Core Enterprise Value
Plus: Excess Cash
Plus: Excess Investments
Plus: Value from NOLs
Adjusted Enterprise Value
Less: Debt
Total Equity Value
Fully Diluted Shares Outstanding (MM)
Less: Share Repurchase Program
Total Shares Outstanding
SOTP Equity Value
Cumulative Upside
Value CAGR over 3 Years
716.4
210.4
Low
Multiple
High
119.38
21.79%
6.79%
SOTP Equity Value
Cumulative Upside
Value CAGR over 3 Years
10.0x
8.0x
9.5x
EV
Low
High
12.0x $ 7,164.3 $
10.0x $ 1,683.5 $
11.5x
8,847.8
173.8
408.2
$ 9,429.8
2,015.8
$ 7,414.0
$
$
72.6
5.1
67.5
$ 109.84 $
12.06%
3.87%
652.3
177.3
Low
Multiple
High
10.0x
8.0x
9.6x
EV
Low
8,597.2
2,104.3
10,701.5
173.8
408.2
11,283.6
2,015.8
9,267.8
72.6
5.1
67.5
137.30
40.08%
11.89%
22
High
12.0x $ 6,523.1 $
10.0x $ 1,418.1 $
11.6x
7,941.2
173.8
408.2
$ 8,523.3
2,015.8
$ 6,507.5
Fully Diluted Shares Outstanding (MM)
Less: Share Repurchase Program
Total Shares Outstanding
Base Case + Share Repurchases + Margin Expansion
Segment
$
$
Core Enterprise Value
Plus: Excess Cash
Plus: Excess Investments
Plus: Value from NOLs
Adjusted Enterprise Value
Less: Debt
Total Equity Value
72.6
0.0
72.6
96.52 $
-1.53%
-0.51%
2015E EBITDA
$
$
72.6
5.1
67.5
$
96.41 $
-1.64%
-0.55%
7,827.7
1,772.7
9,600.4
173.8
408.2
10,182.4
2,015.8
8,166.6
72.6
5.1
67.5
120.99
23.43%
7.27%
X. Appendix: Valuation
Multiples Valuation – Comps
Company
Enterprise
Name
Value
Revenue (USD)
2013A
2014A
2015E
New Grace Comps
Albemarle Corporation (NYSE:ALB)
Johnson Matthey plc (LSE:JMAT)
Clariant AG (SWX:CLN)
EBITDA (USD)
2013A
2014A
EV/EBITDA
2015E
2013A
2014A
2015E
0
6,505.5 2,519.2 2,394.3 2,445.5 705.4 428.7 899.7
11,512.2 16,071.3 16,710.0 15,661.9 781.0 860.7 863.0
8,112.6 6,390.2 6,432.3 6,261.8 820.3 833.0 894.4
9.22x
14.74x
9.89x
15.17x
13.38x
9.74x
7.23x
13.34x
9.07x
2,021.6 1,199.7 1,226.8 1,192.6 172.1 183.9 186.5
9,419.4 5,408.1 5,859.4 5,833.3 697.8 823.3 901.3
11.75x
13.50x
10.99x
11.44x
10.84x
10.45x
New GCP Comps
Forbo Holding AG (SWX:FORN)
Sika AG (SWX:SIK)
23
X. Appendix: Valuation
Operating Model – Base Case
2 0 10 A
Revenue
Refining Catalysts
Growth Rate %
Polyolefin and Chemical Catalysts
Growth Rate %
Catalysts Technologies
Growth Rate %
Materials Technologies
Growth Rate %
Revenue
Construction Revenue
Growth Rate %
Total Revenue
2 0 12 A
2 0 13 A
2 0 14 A
2 0 15 E
2 0 16 E
2 0 17 E
2 0 18 E
2 0 19 E
2020E
2 0 2 1E
2675.0
1077.5
45.2%
269.8
12.3%
1347.3
37.2%
872.6
6.5%
2219.9
992.0
13.6%
3211.9
986.8
-8.4%
281.3
4.3%
1268.1
1.0%
862.6
1.0%
2130.7
1024.8
3.3%
3155.5
832.4
-15.6%
291.6
3.7%
1124.0
-11.4%
878.5
1.8%
2002.5
1058.2
3.3%
3060.7
845.5
1.6%
401.3
37.6%
1246.8
10.9%
890.6
1.4%
2137.4
1105.6
4.5%
3243.0
873.6
3.3%
445.4
11.0%
1319.0
6.1%
914.9
2.7%
2233.9
1138.8
3.0%
3372.6
903.5
3.4%
489.2
9.8%
1392.8
5.6%
939.8
2.7%
2332.6
1172.9
3.0%
3505.5
935.6
3.5%
531.6
8.7%
1467.2
5.3%
965.4
2.7%
2432.6
1208.1
3.0%
3640.7
969.8
3.7%
571.5
7.5%
1541.3
5.1%
991.7
2.7%
2533.0
1244.4
3.0%
3777.4
1006.4
3.8%
607.7
6.3%
1614.1
4.7%
1018.7
2.7%
2632.9
1281.7
3.0%
3914.5
1045.5
3.9%
639.1
5.2%
1684.6
4.4%
1046.5
2.7%
2731.1
1320.1
3.0%
4051.3
1087.3
4.0%
664.7
4.0%
1752.0
4.0%
1075.0
2.7%
2827.0
1359.7
3.0%
4186.8
288.3
29.3%
191.8
23.4%
-108.1
-6.0%
372.0
441.3
32.8%
189.6
21.7%
-89.1
-4.0%
541.8
447.8
35.3%
191.5
22.2%
-81.2
-3.8%
558.1
381.7
34.0%
213.2
24.3%
-68.4
-3.4%
526.5
444.6
35.7%
217.3
24.4%
-60.6
-2.8%
601.3
18%
483.5
36.7%
224.7
24.6%
-63.4
-2.8%
644.8
199.3
844.1
25.0%
23.7%
1.3%
524.5
37.7%
232.3
24.7%
-66.2
-2.8%
690.6
205.3
895.9
25.6%
24.6%
1.0%
567.2
38.7%
240.1
24.9%
-69.0
-2.8%
738.3
211.4
949.7
26.1%
25.3%
0.8%
595.9
38.7%
248.2
25.0%
-71.9
-2.8%
772.2
217.8
990.0
26.2%
624.0
38.7%
256.6
25.2%
-74.7
-2.8%
805.9
224.3
1030.2
26.3%
651.3
38.7%
265.2
25.3%
-77.5
-2.8%
839.0
231.0
1070.0
26.4%
677.3
38.7%
274.1
25.5%
-80.2
-2.8%
871.2
238.0
1109.2
26.5%
239.6
24.4%
160.0
19.5%
-109.9
-6.1%
89.9
388.8
28.9%
158.7
18.2%
-90.9
-4.1%
97.3
3.0%
-131.5
393.8
31.1%
162.0
18.8%
-82.9
-3.9%
125.2
4.0%
-122.8
327.5
29.1%
181.8
20.7%
-72.1
-3.6%
151.7
5.0%
-110.2
378.3
30.3%
185.2
20.8%
-65.2
-3.1%
161.7
5.0%
-99.0
409.4
31.0%
191.8
21.0%
-68.2
-3.1%
168.2
5%
-103.0
-3.1%
666.5
199.9
533.1
442.1
31.7%
198.7
21.1%
-71.2
-3.1%
174.9
5%
-107.0
-3.1%
708.6
212.6
569.6
476.0
32.4%
205.7
21.3%
-74.3
-3.1%
181.7
5%
-111.1
-3.1%
752.3
225.7
607.5
510.8
33.1%
213.1
21.5%
-77.3
-3.1%
188.6
5%
-115.3
-3.1%
797.2
239.2
646.6
534.9
33.1%
220.6
21.7%
-80.4
-3.1%
195.5
5%
-119.5
-3.1%
831.6
249.5
675.2
558.3
33.1%
228.4
21.8%
-83.4
-3.1%
202.5
5%
-123.7
-3.1%
865.5
259.7
703.4
580.6
33.1%
236.5
22.0%
-86.3
-3.1%
209.3
5%
-127.8
-3.1%
898.7
269.6
730.8
742.0
240.3
982.3
819.4
1801.7
873.3
EBITDA
Catalysts Technologies
Margin %
Materials Technologies
Margin %
Corporate
Margin %
New Grace EBITDA
Construction EBITDA
Total EBITDA
Margin %
Consensus Margin %
Difference
EBIT
Catalysts Technologies
Margin %
Materials Technologies
Margin %
Corporate (New Grace)
Margin %
Construction Products
Margin %
Corporate (Full)
Margin
Total EBIT
US EBIT
EBIT on New Grace
2 0 11A
-163.1
626.2
30.0%
289.7
1.  Tax Savings = Change in NOL Balance * Regular Federal Tax Rate
456.6
472.9
437.2
24
498.3
X. Appendix: Valuation
Operating Model – NOLs
N O L D C F
2 0 10 A
2 0 11A
2 0 12 A
2 0 13 A
2 0 14 A
2 0 15 E
2 0 16 E
2 0 17 E
2 0 18 E
2 0 19 E
2020E
2 0 2 1E
2675.0
3211.9
3155.5
3060.7
3243.0
3375.1
667.0
200.1
-59.3
140.8
3511.3
710.0
213.0
-59.3
153.7
3651.0
754.9
226.5
-59.3
167.2
3793.4
801.5
240.5
-59.3
181.1
3937.7
838.2
251.4
-59.3
192.1
4083.3
874.9
262.5
-59.3
203.1
4229.3
911.3
273.4
-59.3
214.1
1800.0
-140.8
1659.2
1659.2
-153.7
1505.5
1505.5
-167.2
1338.3
1338.3
-181.1
1157.2
1157.2
-192.1
965.0
965.0
-203.1
761.9
761.9
-214.1
547.8
35%
35%
35%
35%
35%
35%
35%
Beginning DTA Balance
DTA Change
Ending DTA
630.0
-49.3
580.7
580.7
-53.8
526.9
526.9
-58.5
468.4
468.4
-63.4
405.0
405.0
-67.2
337.8
337.8
-71.1
266.7
266.7
-74.9
191.7
Discount Factor
Discounted Value
0.922
45.4
0.850
45.7
0.784
45.9
0.723
45.8
0.666
44.8
0.614
43.7
0.566 Remaining Value
42.4
94.4
Revenue
EBIT
US EBIT
Interest Payments
US EBI (Pre-Tax Income)
Beginning US NOL Balance
NOL Carryforw ard Usage
Ending US NOL Balance
Statutory Tax Rate
Discount Rate
NPV of NOLs ($mn)
8.46%
408.1
WACC
Note: Assum ption Justifications
Discount Rate
We use WACC as w e believe it reflects the riskiness of generating shieldable income
US EBIT
We assume that US operations represent 30% of Total EBIT going forw ard, in line w ith recent historicals
Interest Payments
We assume Debt Load as specified by Management Guidance and assume no debt paydow n over forecast period
1.  Tax Savings = Change in NOL Balance * Regular Federal Tax Rate
25
X. Appendix: Valuation
DCF – Base Case
Taxes Savings
Marginal Tax Rate
49.2
35%
DC F
EBIT on New Grace
Tax Rate
EBI After Tax
Catalysts Technologies
Materials Technologies
Corporate
(+) D&A
NWC
% of Revenues
(-) Δ NWC
(-) Capex
Cash Flow Before Tax Refund
Tax Refund
Free Cash Flow
Discount Factor
Discounted Value
New Grace EV
New GCP EV
Excess Investments
Debt
Total Equity Value
Shares Outstanding
Value Per Share
2 0 10 A
$
2 0 11A
2 0 12 A
2 0 13 A
2 0 14 A
289.7
456.6
472.9
437.2
498.3
48.7
31.8
2.6
83.1
289.3
11%
(49.70)
52.5
30.9
2.6
86
387.8
12%
(98.50)
54
29.5
2.6
86.1
353.6
11%
34.20
54.2
31.4
5.7
91.3
240.7
8%
112.90
66.3
32.1
7
105.4
379.2
12%
(138.50)
2 0 15 E
9188.7
1893.9 *Based on m ultiples
673.8 *Unconsolidated affiliate and excess cash
2015.8
9740.7
67.5
144.31
53.6
35%
2 0 16 E
58.2
35%
2 0 17 E
62.9
35%
66.6
35%
2 0 18 E
2 0 19 E
70.1
35%
2020E
533.1
35%
346.5
569.6
35%
370.2
607.5
35%
394.9
646.6
35%
420.3
675.2
35%
438.9
703.4
35%
457.2
111.8
394.4
12%
(15.16)
-83.8
359.3
49.2
408.5
0.922
376.6
121.0
409.9
12%
(15.54)
-90.8
384.9
53.6
438.6
0.850
372.8
130.8
425.7
12%
(15.81)
-98.1
411.8
58.2
470.0
0.784
368.3
125.7
441.7
12%
(15.98)
-94.2
435.7
62.9
498.6
0.723
360.3
130.7
457.7
12%
(16.04)
-98.0
455.5
66.6
522.1
0.666
347.8
135.6
473.7
12%
(15.99)
-101.7
475.1
70.1
545.2
0.614
334.9
73.6
35%
2 0 2 1E
0.0
35%
0.0
35%
CV
730.8
35%
475.1
140.4
489.6
12%
(15.84)
-105.3
494.3
'21
73.6 Term inal Value
567.9
11843.1
0.566
0.566
321.6
6706.4
Grow th
3.50%
Key DCF Metrics
Equity Beta
1.066
Beta After Mean Reversion
1.044
Yield on 10% Treasury Note
0.023
Equity Cost of Capital
9.6%
Debt Cost of Capital
4.05%
Market Cap
7218.8
Total Enterprise Value
8683.2
Net Debt
1464.4
WACC
8.46%
L+350
Note: Assum ption Justifications
Refining growth
"Petroleum refining market expected to grow at 2.7% according to HIS Chemical". We estimate Grace's competetive advantages to enable stronger market share capture
Polyolefin/Chemical Catalysts growth
"Propylene Market grow ing at ~11% CAGR and longer term at 5% according to Nexant Technologies Prospectus"
Materials growth
"Grace CEO on Q4 call: seeing strong signals in Materials tech". Our conservative estimates used here at ~ developed economies GDP Grow th
Operating Margins
Based on strong pricing environment and low input costs w e are estimating persistance in margins going forw ard for the value-added new Grace segments
1.  Tax Savings = Change in NOL Balance * Regular Federal Tax Rate
26
X. Appendix: Valuation
DCF – Downside Case
DC F
2 0 10 A
2 0 11A
2 0 12 A
2 0 13 A
2 0 14 A
2 0 15 E
2 0 16 E
2 0 17 E
2 0 18 E
Total Revenue
growth %
2675.0
3211.9
20.1%
3155.5
-1.8%
3060.7
-3.0%
3243.0
6.0%
2762.0
-14.8%
2615.3
-5.3%
2759.2
5.5%
3200.6
16.0%
EBITDA
margin %
372.0
13.9%
541.8
16.9%
558.1
17.7%
526.5
17.2%
601.3
18.5%
275.3
10.0%
375.5
14.4%
401.9
14.6%
511.2
16.0%
EBIT on New Grace
margin %
289.7
10.8%
456.6
14.2%
472.9
15.0%
437.2
14.3%
498.3
15.4%
185.6
6.7%
285.8
10.9%
312.2
11.3%
421.4
13.2%
EBIT on New Grace
Tax Rate
EBI After Tax
(+) D&A
% of Rev
(-) Δ NWC
(-) Capex
Free Cash Flow
Discount Factor
Discounted Value
New Grace EV
New GCP EV
Excess Investments
Debt
Total Equity Value
Shares Outstanding
Value Per Share
289.7
456.6
472.9
437.2
498.3
83.1
3.1%
-49.7
86
2.7%
-98.5
86.1
2.7%
34.2
91.3
3.0%
112.9
105.4
3.3%
-138.5
185.6
15.0%
157.7
89.8
3.3%
56.25
-89.8
214.0
0.922
197.3
285.8
15.0%
242.9
89.8
3.4%
17.15
-89.8
260.1
0.850
221.1
312.2
15.0%
265.3
89.8
3.3%
(16.82)
-89.8
248.5
0.784
194.8
$
6062.9
1820.3 *Based on m ultiples
673.8
2015.8
4720.9
67.4
70.07
CV
421.4
15.0% *NOL Projection
358.2
89.8
2.8%
(13.10)
'18
-89.8 Term inal Value
345.1
7197.2
0.723
0.723
249.4
5200.4
Grow th
3.50%
Key DCF Metrics
Note: Assum ption Justifications
Revenue Growth
Recession metrics from 2009 and 2010 Applied to FY15 and FY16
EBIT Margins
Recession + Post Recession margins applied to projection period
Tax Rate
Estimates tax rate using NOL Carryforw ards to shield income. Based on Management guidance
Perpetuity Grow th
Reasonable perpetuity grow th of global GDP
27
Equity Beta
1.066
Beta After Mean Reversion
1.044
Yield on 10% Treasury Note
0.023
Equity Cost of Capital
9.6%
Debt Cost of Capital
4.05%
Market Cap
7218.8
Total Enterprise Value
8683.2
Net Debt
1464.4
WACC
8.46%
L+350
X. Appendix: Valuation
DCF Sensitivities
Base Case Sensitivity
Bear Case Sensitivity
WACC
9.5%
9.0%
8.5%
8.0%
7.5%
2.5%
$108.9
$116.8
$126.1
$137.1
$150.2
Terminal Grow th Rate
3.0%
3.5%
$114.3
$120.5
$123.3
$130.9
$133.9
$143.3
$146.7
$158.5
$162.3
$177.5
WACC
9.5%
9.0%
8.5%
8.0%
7.5%
2.5%
11.1%
19.2%
28.6%
39.8%
53.3%
Terminal Grow th Rate
3.0%
3.5%
16.6%
22.9%
25.8%
33.5%
36.6%
46.2%
49.7%
61.7%
65.6%
81.1%
4.0%
$127.9
$140.0
$154.8
$173.2
$196.9
4.5%
$136.8
$151.1
$169.1
$192.1
$222.9
WACC
9.5%
9.0%
8.5%
8.0%
7.5%
2.5%
$45.3
$50.5
$56.6
$63.9
$72.6
Terminal Grow th Rate
3.0%
3.5%
4.0%
$49.3
$53.9
$59.5
$55.3
$60.9
$67.6
$62.4
$69.3
$77.7
$70.9
$79.5
$90.2
$81.3
$92.3
$106.3
4.5%
$66.1
$75.9
$88.2
$104.0
$125.1
4.0%
30.5%
42.8%
57.9%
76.7%
100.9%
4.5%
39.5%
54.2%
72.5%
96.0%
127.4%
WACC
9.5%
9.0%
8.5%
8.0%
7.5%
2.5%
(52.7%)
(47.3%)
(40.9%)
(33.3%)
(24.2%)
Terminal Grow th Rate
3.0%
3.5%
4.0%
(48.5%)
(43.7%)
(37.9%)
(42.3%)
(36.4%)
(29.4%)
(34.9%)
(27.7%)
(18.9%)
(26.0%)
(17.0%)
(5.8%)
(15.1%)
(3.7%)
11.0%
4.5%
(31.0%)
(20.7%)
(7.9%)
8.6%
30.6%
28