Exhibit 99.2
[Solutia logo]
Solutia Inc.
Valuation discussion materials
Disclaimer
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This presentation was prepared by Rothschild Inc. ("Rothschild") for the
benefit and internal use of Solutia Inc. ("Solutia" or the "Company"). In
providing this presentation, Rothschild has relied upon information that is
publicly available or which was provided to Rothschild by or on behalf of the
Company's management, including management operating and financial forecasts.
This presentation reflects Rothschild's view and prevailing financial and
market conditions as of the date hereof, all of which are accordingly subject
to change. Rothschild has not assumed any responsibility for independent
verification of any of the information contained herein including, but not
limited to, any forecasts or projections set forth herein. In addition,
Rothschild assumes no obligation to update or to correct any inaccuracies
which may become apparent in this presentation and the analyses contained
herein are not and do not purport to be appraisals of the assets, stock or
business of the Company. This presentation is incomplete without reference
to, and should be viewed solely in conjunction with, the oral briefing
provided by Rothschild. Nothing contained herein shall be deemed to be a
recommendation from Rothschild to any party, including without limitation,
any security holder of the Company to enter into any transaction or to take
any course of action. Neither this presentation nor any of its contents may
be summarized, excerpted from, disclosed publicly, or made available to any
third parties or used for any other purpose without the prior written consent
of Rothschild.
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[Solutia logo]
Valuation discussion
Valuation discussion
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INTRODUCTION
THESE MATERIALS PRESENT THE VIEWS OF ROTHSCHILD INC. ("ROTHSCHILD") REGARDING
THE GOING-CONCERN VALUE ("GCV") OF SOLUTIA INC. ("SOLUTIA" OR THE "COMPANY"),
ASSUMING A STAND-ALONE REORGANIZATION OF THE COMPANY AND THE ACQUISITION OF
AKZO NOBEL'S 50% OWNERSHIP INTEREST IN FLEXSYS(1)
o For purposes of this analysis, Rothschild has relied on Solutia's most
recent forecasts and assumptions for the Company and its prospects as set
forth in its long-range business plan dated December 15, 2006 (the "LRP")
and Flexsys' five-year operating plan (the "FOP")
- Forecast has been adjusted by Solutia management to reflect
Solutia's ownership of Flexsys
- On March 12, 2007, Solutia reached a definitive agreement to sell
the Dequest business to Thermphos Trading GmbH for net proceeds of
approximately $60 million
o Solutia is reorganized on a "stand-alone" basis with an assumed
confirmation date of June 30, 2007 and is operating outside of chapter 11
no later than July 31, 2007
o Future values are discounted to June 30, 2007
o Solutia is able to recapitalize with adequate liquidity upon emergence
from chapter 11
o Solutia is operating in conjunction with the provisions of and the
projections set forth in the LRP, including establishment of a Funding
Co. to fund certain environmental, other post-retirement employment
benefit ("OPEB") and other "legacy" liabilities
o Solutia is able to implement the agreement reached with Monsanto
Company and the Official Committee of Unsecured Creditors (the
"Agreement-in-Principle") or an alternate plan providing for similar
structure and terms and enabling the Company to meet the projections
contained in the LRP and the FOP
o Capital markets conditions are consistent with those that existed as of
March 2007
o All valuation methodologies are predicated upon numerous assumptions
pertaining to prospective market, economic and operating conditions as of
the date of this presentation
<FN>
(1) On February 27, 2007, Solutia reached a definitive agreement to purchase
Akzo Nobel's 50% ownership interest in Flexsys
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Valuation discussion
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OVERVIEW OF METHODOLOGY
ROTHSCHILD ANALYZED SOLUTIA'S TOTAL GOING-CONCERN VALUE UTILIZING THREE
STANDARD VALUATION METHODOLOGIES:
o Comparison against trading values of selected comparable public companies
("Comparable Companies Analysis")
o Comparison against relevant precedent transactions ("Precedent
Transactions Analysis")
o Discounted cash flow analysis ("DCF")
- For purposes of conducting the DCF analysis, Rothschild valued
Flexsys separately
- Additionally, Rothschild valued Solutia's US net operating losses
("NOL") separately
- Solutia's total DCF value reflects the value of Solutia and
Flexsys assuming normalized tax rates plus the estimated value
of Solutia's US NOL tax attributes
o Rothschild's valuation analysis assumes the acquisition of Akzo Nobel's
50% joint venture ownership interest in Flexsys and the sale of the
Dequest business
o For purposes of valuing the Integrated Nylon ("Nylon") and Performance
Products ("PPD")(1) businesses, Rothschild allocated 50% of corporate
expenses to Nylon and 50% of corporate expenses to PPD based on a
percentage of sales of Saflex, CPFilms and Specialty Products
- No corporate expenses of Solutia allocated to Flexsys
<FN>
(1) Consists of the Saflex, CPFilms and Specialty Products businesses
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Valuation discussion
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SUMMARY VALUATION RANGE
BASED ON THE ASSUMPTION OF A STAND-ALONE REORGANIZATION, THE ACQUISITION OF
AKZO NOBEL'S 50% OWNERSHIP INTEREST IN FLEXSYS AND THE SUCCESSFUL
IMPLEMENTATION OF THE COMPANY'S LRP AND FLEXSYS' FOP, THE ANALYSES OUTLINED
HEREIN RESULT IN A TOTAL ENTERPRISE VALUE ("TEV") RANGE (1) OF $2.5 BILLION TO
$3.2 BILLION, WITH A MID-POINT VALUE OF $2.8 BILLION
o Assuming a net indebtedness of approximately $1.65 billion, Rothschild's
TEV range results in a range of implied equity value ("Implied Equity
Value") of $878 million to $1.5 billion, with a mid-point value of
approximately $1.2 billion
CURRENT PROJECTIONS(1) 2/14/06 DISCLOSURE STATEMENT(1) VARIANCE
RANGE OF ENTERPRISE VALUES RANGE OF ENTERPRISE VALUES RANGE OF ENTERPRISE VALUES
($ in millions) ($ in millions) ($ in millions)
METHODOLOGY LOW MID HIGH LOW MID HIGH LOW MID HIGH
- ----------- ------ ------ ------ ------ ------ ------ ------ ------ ------
Comparable Companies Analysis $2,459 $2,747 $3,024 $1,439 $1,588 $1,737 $1,020 $1,159 $1,287
Precedent Transactions Analysis 2,258 2,721 3,183 1,652 1,779 1,906 606 941 1,277
Discounted Cash Flow Analysis 2,865(2) 3,064(2) 3,281(2) 1,795(3) 1,941(3) 2,099(3) 1,070 1,124 1,182
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RANGE OF GOING-CONCERN VALUE(4) $2,527(5) $2,844(5) $3,163(5) $1,628 $1,769 $1,914 $899 $1,075 $1,249
================================================================= ============================= ==========================
Range of Flexsys JV Interest Value -- -- -- 335(6) 373(6) 410(6) (335) (373) (410)
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RANGE OF TOTAL ENTERPRISE VALUE $2,527 $2,844 $3,163 $1,964 $2,142 $2,325 $563 $702 $838
================================================================= ============================= ==========================
Less: Total Pro Forma Net Debt (1,649)(7) (1,649)(7) (1,649)(7) (1,230) (1,230) (1,230) (419) (419) (419)
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IMPLIED EQUITY VALUE $878 $1,195 $1,514 $734 $912 $1,095 $144 $283 $419
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<FN>
(1) Valuation excludes any potential impact to value related to outstanding
litigation and makes no assumption with respect to pension plan
challenges
(2) Includes value of unlevered free cash flow analysis of Solutia (excluding
Flexsys) assuming a normalized tax rate plus the estimated value of
Solutia's NOL tax attributes plus value of unlevered free cash flow
analysis of Flexsys assuming a normalized tax rate
(3) Includes value of unlevered free cash flow analysis of Solutia assuming a
normalized tax rate plus the estimated value of Solutia's NOL tax
attributes
(4) Assumes equal weighting of valuation methodologies
(5) Assumes the acquisition of Akzo Nobel's 50% equity ownership interest in
Flexsys and the sale of the Dequest business
(6) Based on equal weighting of Flexsys Comparable Companies Analysis,
Precedent Transactions Analysis and Discounted Cash Flow Analysis
(7) Assumes post-emergence cash balance of $25 million
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Valuation discussion
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COMPARISON OF REQUIRED FUNDING NEEDS
THE TABLE BELOW REFLECTS THE DIFFERENCES BETWEEN THE REQUIRED FUNDING NEEDS AT
EMERGENCE PER THE COMPANY'S CURRENT PROJECTIONS AND THE FEBRUARY 14, 2006
DISCLOSURE STATEMENT PROJECTIONS
o Funding needs exclude any treatment of claims asserted by Monsanto,
General Unsecured Claimants, holders of the 2027 and 2037 Bonds and
Retirees, and excludes any treatment of "Funding Co." needs
COMPARISON OF REQUIRED FUNDING NEEDS ($ IN MILLIONS)
2/14/06
CURRENT DISCLOSURE
FUNDING NEEDS PROJECTIONS STATEMENT DIFFERENCE
- --------------------------------------------------------- ---------- ----------
Refinance DIP Facility 975(1) 420(6) 555
Assumed Flexsys Debt 200 -- 200
Refinance 2009 Notes 223(2) 223(2) --
Refinance Euro Loan 210(3) 247(7) (37)
2007 & 2008 Pension Contribution 103 264 (161)
Maryville Lease Facility 20 20 --
Admin and priority costs, financing costs,
professional fees & other emergence costs 154(4) 151(8) 3
Less: Available cash (211)(5) -- (211)
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TOTAL PRO FORMA DEBT $1,674 $1,325 $349
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Less: Post-emergence cash balance (25) (95) 70
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TOTAL PRO FORMA NET DEBT $1,649 $1,230 $419
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<FN>
(1) Includes $150 million of Flexsys acquisition debt. Assumes emergence date
of 6/30/2007
(2) Portion of unamortized discount may be subject to litigation
(3) Balance as of 12/31/2006
(4) Includes administrative and priority claims, debt issuance costs,
professional fees and other emergence costs
(5) Pro forma for the sale of the Dequest business. Excludes $25 million
post-emergence cash balance
(6) Assumes emergence date of 6/30/2006
(7) (euro)200 million Euronotes redeemed at 103%
(8) Includes administrative and priority claims, debt issuance costs,
professional fees and other emergence costs
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Valuation discussion
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SUMMARY VALUATION RANGE - CURRENT PROJECTIONS
THE CHART BELOW ILLUSTRATES ROTHSCHILD'S SELECTED TOTAL ENTERPRISE VALUE RANGE
OF SOLUTIA
o Total Enterprise Value range based on equal weighting of Comparable
Companies Analysis (33.3%), Precedent Transactions Analysis (33.3%) and
DCF Analysis (33.3%)
RANGE OF TOTAL ENTERPRISE VALUE(1) ($ IN MILLIONS)
[bar chart]
COMPARABLE COMPANIES $2,459 - $3,024
PRECEDENT TRANSACTIONS $2,258 - $3,183
DCF(4) $2,865 - $3,281
RANGE OF TOTAL ENTERPRISE VALUE(5) $2,527 - $3,163
BLENDED IMPLIED EBITDA MULTIPLES(2)
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LOW MID HIGH
------- ------- --------
2006A EBITDA(3) 7.5x - 8.4x - 9.2x
2007P EBITDA 6.2x - 6.9x - 7.6x
2008P EBITDA 5.7x - 6.3x - 7.0x
2006A EBITDA(3) 6.9x - 8.3x - 9.7x
2007P EBITDA 5.7x - 6.8x - 8.0x
2008P EBITDA 5.2x - 6.3x - 7.3x
2006A EBITDA(3) 8.7x - 9.3x - 10.0x
2007P EBITDA 7.2x - 7.7x - 8.2x
2008P EBITDA 6.6x - 7.0x - 7.5x
2006A EBITDA(3) 7.7x - 8.7x - 9.6x
2007P EBITDA 6.3x - 7.1x - 7.9x
2008P EBITDA 5.8x - 6.5x - 7.3x
<FN>
(1) Excludes any potential impact to value related to outstanding litigation.
Assumes the acquisition of Akzo Nobel's 50% ownership interest in Flexsys
and the sale of the Dequest business
(2) EBITDA excludes pre-spin OPEB expense, interest income, restructuring
expenses / charges and other income
(3) 2006 EBITDA includes Flexsys normalized EBITDA based on average of
five-year forward Flexsys EBITDA
(4) Includes value of discounted unlevered free cash flow analysis of Solutia
assuming a normalized tax rate plus the estimated value of Solutia's NOL
tax attributes. Excludes 2007 and 2008 projected pension payments (2007 -
2008 pension payments funded in exit facility)
(5) Assumes equal weighting of valuation methodologies
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Valuation discussion
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TOTAL ENTERPRISE VALUE - IMPLIED MULTIPLES
o Rothschild's selected TEV range of $2.5 billion - $3.2 billion with a
mid-point of $2.8 billion implies the following multiples:
- EBITDA and EBIT exclude pre-spin OPEB expense, interest income,
restructuring expenses / charges and other income; Net Income
excludes pre-spin OPEB expense and restructuring expenses / charges
- Assumes the acquisition of Akzo Nobel's 50% ownership interest in
Flexsys and the sale of the Dequest business
2007P Net Income
assumes $1,674
million debt balance
at emergence.
Positive free cash
flow is assumed to
pay down debt over
time for illustrative
purposes only
IMPLIED MULTIPLES ANALYSIS ($ IN MILLIONS)
LOW MID HIGH
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RANGE OF TOTAL ENTERPRISE VALUE(1) $2,527 $2,844 $3,163
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IMPLIED TEV MULTIPLES PROJECTION
- --------------------- ------------
2006A EBITDA(2) $328 7.7x 8.7x 9.6x
2007P EBITDA 398 6.3x 7.1x 7.9x
2008P EBITDA 435 5.8x 6.5x 7.3x
2006A EBIT(2) $186 13.6x 15.3x 17.0x
2007P EBIT 254 10.0x 11.2x 12.5x
2008P EBIT 303 8.3x 9.4x 10.4x
LOW MID HIGH
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IMPLIED EQUITY VALUE RANGE(3) $878 $1,195 $1,514
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IMPLIED P/E MULTIPLES
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2006A Net Income(2)(4) $24 n.m.f. n.m.f. n.m.f.
2007P Net Income(4) 78 11.3x 15.3x 19.4x
2008P Net Income(4) 116 7.5x 10.3x 13.0x
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<FN>
(1) Excludes any potential impact to value related to outstanding litigation
(2) 2006A EBITDA, EBIT, and Net Income includes Flexsys normalized EBITDA,
EBIT and Net Income based on average of five-year forward Flexsys EBITDA,
EBIT and Net Income, respectively
(3) Assumes net debt of $1,649 million
(4) Excludes after-tax impact of restructuring expenses / charges at an
effective tax rate of 30% for 2006A - 2008P
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Valuation discussion
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SUMMARY FINANCIALS - CURRENT PROJECTIONS
Pro forma for the
acquisition of Akzo
Nobel's 50%
ownership interest in
Flexsys and the sale
of the Dequest
business
EBITDA excludes
pre-spin legacy
OPEB expense of
$12mm in 2006A,
$7mm in 2007P and
$2mm in
2008P - 2011P
SUMMARY OF CONSOLIDATED FINANCIAL PROJECTIONS ($ IN MILLIONS)
06-'11
Year ended December 31 2006A 2007P 2008P 2009P 2010P 2011P CAGR
- ---------------------------------------------------------- ---------- ---------- ---------- ---------- ---------- ----------
Sales $3,401 $3,618 $3,670 $3,838 $3,797 $3,846 2.5%
% Growth 6.4% 1.4% 4.6% (1.1%) 1.3%
Gross profit $513 $572 $633 $708 $773 $812 9.6%
% margin 15.1% 15.8% 17.2% 18.4% 20.4% 21.1%
MAT Expenses ($312) ($324) ($334) ($346) ($351) ($364) 3.1%
% of Sales 9.2% 9.0% 9.1% 9.0% 9.2% 9.5%
Other, net(1) ($1) ($1) ($1) ($1) ($1) ($0) n.m.f.
Total Solutia + Unadjusted Flexsys EBIT(2) $218 $254 $303 $366 $427 $454 15.8%
% margin 6.4% 7.0% 8.3% 9.5% 11.2% 11.8%
Total Solutia + Normalized Flexsys EBIT(2) $186(3) $254 $303 $366 $427 $454 19.5%
% margin 5.5% 7.0% 8.3% 9.5% 11.2% 11.8%
------ ------ ------ ------ ------ ------ -----
TOTAL SOLUTIA EBITDA (EXCLUDING FLEXSYS)(2)(4) $223 $209 $342 $399 $434 $467 $16.0%
Unadjusted FLexsys EBITDA 147 100 93 100 120 114 (5.0%)
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TOTAL SOLUTIA + UNADJUSTED FLEXSYS EBITDA(2)(4) $370 $398 $435 $499 $554 $581 9.5%
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% margin 10.9% 11.0% 11.9% 13.0% 14.6% 15.1%
Normalized Flexsys EBITDA 106(5) 100 93 100 120 114 1.5%
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TOTAL SOLUTIA + NORMALIZED
FLEXSYS EBITDA(2)(4)(5) $328 $398 $435 $499 $554 $581 12.1%
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% margin 9.7% 11.0% 11.9% 13.0% 14.6% 15.1%
Source: Company projections dated December 15, 2006 and Flexsys FOP
<FN>
(1) Includes other income / (expense), currency impact and amortization
charges
(2) EBITDA and EBIT exclude pre-spin OPEB expense, interest income,
restructuring expenses / charges and other income. 2006A Nylon EBIT and
EBITDA exclude a charge of approximately $10 million associated with AN
fire
(3) 2006A EBIT assumes Flexsys normalized EBIT based on average of five-year
forward Flexsys EBIT (including synergies)
(4) 50% of corporate expenses allocated to Nylon and 50% of corporate
expenses allocated to PPD based on a percentage of sales of Saflex,
CPFilms and Specialty Products. No corporate expenses of Solutia
allocated to Flexsys
(5) 2006A EBITDA assumes Flexsys normalized EBITDA based on average of
five-year forward Flexsys EBITDA (including synergies)
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[Solutia logo] 10
Appendix
Appendix
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CASH PAID AT EMERGENCE
ESTIMATED ADMINISTRATIVE AND PRIORITY COSTS, FINANCING COSTS, PROFESSIONAL
FEES & OTHER EMERGENCE COSTS ($ IN MILLIONS)
Exit financing - Banks, legal, etc. $37
Secured, administrative and priority claims (tax,
reclaimation, mechanics liens, other) 34
Cure costs on executory contracts 20
Monsanto advisor fees 23
Professional and completion fees 14
Various insurance policies 7
Accrued interest on 2009 bonds 12
Other 6
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TOTAL(1) $154
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<FN>
(1) Restructuring payments / emergence costs of $154 million are captured in
the exit capitalization
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