Huntsman Corporation's recent earnings calls paint a fascinating picture of a company grappling with the complexities of a global chemical market in flux. While headlines focus on polyurethane volumes and the impact of benzene prices, a deeper analysis of CEO Peter Huntsman's commentary reveals a potentially more seismic story brewing beneath the surface: the strategic re-evaluation of their European assets.

The current quarter transcript, coupled with the Q4 2023 call, exposes a palpable tension between Huntsman's cyclical optimism and the structural challenges plaguing their European operations. This tension, barely a whisper in the background noise of other metrics, could be the precursor to a significant portfolio shake-up with potentially far-reaching consequences for the chemical industry.

Huntsman's European operations, particularly the polyurethane and maleic anhydride segments, have been bleeding cash for almost two years, a fact frankly admitted by the CEO in the Q4 2023 call. This unsustainable situation, exacerbated by the volatile energy landscape and a stifling regulatory environment, is driving a fundamental reassessment of the company's long-term strategy in the region.

While acknowledging the gradual improvement in demand and pricing, Huntsman's language reveals a deep-seated unease about the long-term viability of their European operations. He pointedly questions the sustainability of current margins, highlights Europe's "deindustrialization," and even expresses surprise that some European competitors are still operating, implying a stark cost disadvantage.

"This skepticism contrasts sharply with his more optimistic outlook for North American and Asian markets. In these regions, Huntsman sees a path to normalized margins and sustainable profitability driven by recovering demand and improving pricing dynamics. This regional divergence in outlook, underscored by the CEO's repeated emphasis on Europe's unique challenges, suggests that a more drastic solution might be on the horizon."

Intriguingly, amidst the gloom surrounding Europe, Huntsman strategically introduces the possibility of M&A activity, particularly mergers aimed at industry consolidation. This strategic maneuver, potentially driven by the desire to strengthen their position in a difficult market, could signal a willingness to shed assets or even engage in a transformational merger.

Huntsman's Global MDI Volume Recovery

The following chart shows the MDI Volume change in key regions based on Huntsman's Q1 2024 and Q4 2023 earnings call transcripts.

The Q1 2024 transcript further reinforces this possibility. Huntsman emphasizes the need to protect the balance sheet during this recovery phase, implying a reluctance to engage in large-scale acquisitions. He then reiterates the ongoing portfolio assessment, posing critical questions about the company's ownership of its assets and their relative value. This repeated emphasis, coupled with the earlier M&A commentary, strongly suggests that divestitures, potentially significant ones, are being actively considered.

The potential scale of these divestitures is a key question. While recent years have seen Huntsman divest smaller businesses like textile effects and TiO2, the CEO's admission that they could be "getting too small" without a replacement acquisition implies a willingness to consider larger transactions.

Here's where the numbers get interesting. Huntsman's peak EBITDA, excluding divested textiles, stood at approximately $1.3 billion. If their European operations, currently operating at negative cash flow, contribute a significant portion of the gap between this peak and their projected 2024 EBITDA of $450 million to $500 million, a divestiture could unlock substantial value.

"Hypothetically, assuming a mid-cycle EBITDA of $800 million to $900 million, a European divestiture could represent anywhere between $400 million to $500 million in EBITDA. Using a conservative 10x EBITDA multiple, this could translate to a potential divestiture value of $4 billion to $5 billion, a significant portion of Huntsman's current market cap."

This hypothetical scenario, while speculative, highlights the potential magnitude of Huntsman's European puzzle. The CEO's commentary, while veiled, suggests a strategic inflection point for the company, with European divestitures potentially acting as a catalyst for a significant portfolio realignment.

While other analysts dissect polyurethane operating rates and Chinese demand, the subtle hints within Huntsman's earnings calls paint a compelling narrative of a company poised for a potential European exodus. The question is not if, but when and how this strategic shift will unfold, and what it means for the global chemical industry's future landscape.

"Fun Fact: Huntsman Corporation's headquarters is located in The Woodlands, Texas, a master-planned community known for its lush forests and waterways. This location reflects the company's deep roots in the United States, even as it navigates the complexities of a globalized chemical market."