Starboard builds stake in Solstice, presses for cost cuts after failed Element deal

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Starboard pushes Solstice cost cuts

Highlights

Starboard Value has acquired a stake of several hundred million dollars in Solstice, becoming a top 10 shareholder and demanding $100 million in overhead cuts.
Solstice shares are 26% below pre-Element deal levels after scrapping the $14.5 billion merger, yet still up 14% since trading began with a market cap near $9.6 billion.
Starboard highlights growth potential in Solstice's nuclear unit, which stands to benefit from rising U.S. nuclear demand and a 2028 deadline to stop Russian uranium imports.

Activist push after merger setback

As first reported by Financial Times, Starboard Value has built a stake worth several hundred million dollars in Solstice, making it one of the company’s top 10 shareholders, according to people familiar with the matter. The hedge fund is urging the company to sharpen execution in its refrigerants and nuclear businesses and pursue roughly $100 million in overhead reductions to lift the share price.

Solstice’s stock nearly doubled after the Honeywell spin-off, but much of that advance disappeared after the company announced its $14.5 billion cash-and-stock deal for Element Solutions in early July. The shares suffered their worst trading day when the transaction was unveiled and remain 26% below their pre-announcement level, although the stock is still up 14% from its first day of trading and gave the company a market capitalization of nearly $9.6 billion at Monday’s close.

Solstice abandoned the Element combination in late August before a key shareholder vote after investors questioned the strategic logic of combining two businesses with limited overlap. The proposed deal also raised concerns about capital allocation because Solstice was set to pay a higher earnings multiple for Element than its own trading valuation.

Starboard founder and chief executive Jeff Smith is expected to unveil the investment on Tuesday at the 13D Monitor Active-Passive Investor Summit. Solstice and Starboard did not immediately respond to requests for comment.

Nuclear growth case gains prominence

Solstice is a specialty chemicals producer with operations spanning air conditioning, insulation and refrigeration materials, as well as an electronics business serving chipmakers. Its nuclear unit is drawing particular attention because it supplies a key chemical used in uranium enrichment, placing the company among only a few groups outside Russia and China able to complete the initial step in that process.

Starboard sees growth potential in that business as rising electricity demand tied to artificial intelligence could support renewed investment in nuclear power. Solstice may also benefit from a 2028 U.S. government deadline to end imports of Russian enriched uranium, a shift that is likely to support earnings growth for domestic and allied suppliers.

Analysts at BMO Capital Markets say the nuclear division could command a higher valuation as a standalone business. The activist campaign adds to a difficult first year for chief executive David Sewell, who was recruited by Honeywell to lead Solstice ahead of its spin-off last October as part of the parent company’s three-way breakup.

Our earlier report on the intensifying race to commercialise nuclear fusion explained how governments and companies are pushing the technology beyond the lab, with energy security and supply chains becoming increasingly strategic. We noted that advances in areas such as superconducting magnets and higher-performance test reactors are accelerating progress, even as policymakers and investors weigh long timelines and uncertain future costs amid surging electricity demand.

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