Solstice Advanced Materials SOLS

Current Stats

Post-Spinoff Performance

Computed from split-adjusted closing prices. Returns are total return — (end price + dividends received − start price) ÷ start price — with no reinvestment assumed.

Update — September 2, 2026 — the Element Solutions merger is terminated

Written against the September 2 close of $60.99. Primary sources: the Element Solutions termination announcement (August 27, 2026), the report of the +12.8% session and the $500M buyback, and the Q2 2026 Form 10-Q. The analysis below this section is unchanged and is retained as written; see What this section supersedes at the end.

The one-line version

The upside case landed, and the price took it the same week.

The August 24 analysis said the upside case here was the deal not happening. On August 27 both boards mutually terminated the merger. Neither party owes the other anything — no break fee, no stranded financing cost, no reverse-termination liability — despite a disclosed fee of $385M, or $513M in specified circumstances. Solstice paired the announcement with a $500M share repurchase authorisation. The stock rose 12.8% in a single session, to $63.53.

Rating BUY → HOLD. Target $62, unchanged. Grade A− (3.63), unchanged.

Nothing about the business got worse. The thesis was right and it resolved: the shares closed the discount. At $60.99 against a standalone fair value of roughly $61 on a range of $55–$69, they now trade essentially at fair value — 1.6% below the $62 target, which is not a margin of safety. An A− business at fair value is a hold, not a buy.

The pop has partly faded, and that is worth noting rather than smoothing over: $63.53 on August 28, $60.99 three sessions later. The re-rating was real and most of it has held, but roughly a third of the initial move has come back.

What the termination restores

July’s downgrade was explicit that it was a thesis change, not a drawdown to buy. The security being graded was a clean, high-margin specialty-materials pure-play. What the merger would have created was a leveraged acquirer integrating a $14.5B target nine months after independence, with pro-forma leverage rising toward ≈3.5x on a $4.685B Goldman bridge commitment.

That security no longer exists. The original one does, with FY2026 guidance intact — revenue $4.13–4.19B, adjusted EBITDA $1.04–1.06B — and net leverage of 1.13x against $750M of cash.

The arithmetic that took 22.5% out of the stock over two sessions in July was issuing paper at ≈9.4x EV/EBITDA to buy an asset at 26.5x (19.9x after guided synergies). Unwinding that was worth money, and the market said so immediately.

Why this is not a return to BUY

This is a change of direction from the reading earlier in the cycle, when the termination alone was treated as restoring the BUY. It does not, and the reason is arithmetic rather than sentiment:

The termination restored the security; the share price then took the value it was worth. On the midpoint of FY2026 adjusted EBITDA guidance, 158.8M shares and net leverage of 1.13x, that is an enterprise value of roughly $10.9B, or ≈10.4x — no longer a discount, and no longer the ≈9.4x at which the company was proposing to issue paper. (The 2026-08-31 report puts the same multiple at ≈11.2x; the gap is a share-count and net-debt basis difference, not a change in view. The figure above is computed from the inputs stated here.)

The three-year record is why fair value is not higher, and none of it has changed: adjusted EBITDA margin ran 29.9% → 25.7% → 25.2%, with 2025 EBITDA below 2023 in absolute dollars, and normalized standalone EPS is down 14% since 2023 — 24% excluding ConverDyn. 2025 free cash flow was $119M against $546M in 2024. The offsetting evidence also stands: 1H26 already exceeds all of 2025 on operating cash flow, free cash flow is up 45%, and capital expenditure at 169–184% of depreciation is growth spending rather than maintenance, which is itself part of why fixed cost is under-absorbed in the margin line.

The scorecard: 3.63 unchanged, two rationales changed

The weighted score does not move. Two of the five rationales do, and they are worth stating because the reasons changed even where the number did not.

An earlier draft marked down both Strategic Rationale and Management for the price paid for Element. That was double-counting a single objection — the purchase price is already reflected in what a buyer pays today. The price was a valuation input, not a character flaw. The point is moot now in any case, and is recorded here so the reasoning is not repeated.

Capital allocation — the $500M authorisation

The buyback is the first genuinely new capital-allocation fact since the August 24 section, and it lands on a company that had been spending its cash on capex at 169–184% of depreciation while free cash flow fell to $119M in 2025.

What it signals is that the board, having just declined to spend $14.5B of paper on an acquisition, is willing to return capital instead. What it does not settle is whether the authorisation gets used: an authorisation is permission, not a commitment, and 1H26 free cash flow of $246M against a $500M program means this is a multi-year intention or a balance-sheet drawdown, not a quarter’s work. Worth watching in the Q3 filing rather than crediting now.

What would change this view

To A: refrigerant margin stabilising for two consecutive quarters — the single measurement that would convert the bull case from argument to evidence.

Down: evidence that the refrigerant decline is structural rather than cyclical and mix-driven.

The DCF is deliberately not re-run here. The standalone model already was the live branch, and re-running it against a price that moved 12.8% in a week would produce a number driven by the price rather than by the business. It is scheduled for after the next earnings report.

What this section supersedes

Everything below is retained exactly as written on August 24 — nothing has been edited, and the corrections rule is why. But the merger was load-bearing in several places, and those sections are now history rather than analysis:

Post-Spin Analysis — August 24, 2026

Written against the August 21 close of $56.16. Primary sources: the FY2025 Form 10-K (filed 2026-02-19) and the Q2 2026 Form 10-Q (filed 2026-07-30), which contains the Element Solutions merger disclosure.

The one-line version

The standalone business is cheap. The acquisition is what is expensive, and the market has priced Solstice as though it closes.

At $56.16 Solstice trades at 9.4x EV/EBITDA on its own forward earnings. It is issuing that paper to buy Element Solutions at 26.5x EV/EBITDA — 19.9x after guided synergies. That arithmetic, not arbitrage mechanics, is what took 22.5% out of the stock over two sessions in July.

The consequence is an unusual asymmetry. On a standalone basis the shares are worth roughly $61 on our model, +9%, on a range of $55–$69. On a pro-forma basis the combined company at today’s price is already 12.8x, or 11.6x with synergies — full. The upside case here is the deal not happening, and Honeywell holds a contractual consent right that could stop it.

Rating BUY. Target $62. Both paths pay, but neither pays spectacularly: the standalone business is worth $55–$69 if the deal breaks, and if it closes you own three growing franchises at 12.3x EV/EBITDA a year out, deleveraging to 7.1x by year five.

The target has moved twice, and both times on evidence rather than news. From $70 to $65, when three years of segment history showed the refrigerant margin declining in every year since 2023 rather than only since the spin — which removed the margin-recovery assumption the original target rested on. Then from $65 to $62, when the capital-allocation record showed capital expenditure running at 8.6–10.1% of sales against the 8%→6% the model assumed. What holds the rating at BUY is the floor rather than the ceiling: even if the decline runs uninterrupted for another seven years, the standalone business is worth roughly today’s price — and the nuclear franchise is a genuine unpriced call option.

What the business actually is

Honeywell’s advanced-materials arm, separated October 30, 2025 and added to the S&P 500. FY2025 net sales $3,886M, adjusted EBITDA margin 25.7%. Roughly 4,100 employees. Two segments built on the same fluorine chemistry:

Two things in that table deserve more attention than they usually get.

The refrigerant business has a regulatory tailwind, not just a cyclical one. Low-global-warming-potential refrigerants are mandated — the 10-K notes LGWP refrigerants “are required in nearly every new car sold in regulated markets.” The company is named after its flagship HFO line. The global HFC phase-down forces a multi-decade product substitution toward exactly what Solstice sells.

The nuclear business is a genuine monopoly, and Solstice co-owns it. The Nuclear (AES) unit provides uranium hexafluoride conversion to utilities through ConverDyn — a joint venture between Solstice and General Atomics — operating the Metropolis Works facility in Illinois. The 10-K states it plainly: together with its joint-venture partner, “we are the only provider of these services in the U.S.” Solstice does not own this outright; it owns its share of a two-party JV, which matters both for how the economics consolidate and for who could eventually buy it. One of the few literal monopolies in the tracked universe, attached to a nuclear-power demand cycle, sitting inside a segment nobody discusses.

Management Team

Two observations that matter more than the résumés.

The CEO is an acquirer by temperament, and the record is recent. Sewell’s previous role ended when WestRock combined with Smurfit Kappa — a transformative, transatlantic merger. Eight months into running Solstice he agreed to a $14.5B acquisition. That is not a criticism, but it is a pattern, and it is the single most useful thing to know when underwriting how this management team will deploy capital over the next five years. Expect more transactions, not fewer.

The chair ran the parent division. Deep domain knowledge, and the person best placed to judge what these assets are worth. It also means the board’s most senior figure is a Honeywell lifer at a company whose former parent holds a consent right over its strategy — a governance dynamic worth watching rather than worrying about.

The financial record — three years by segment

Revenue is not the problem. Margins are. And the margin decline is not two quarters old, which is how the post-spin reporting makes it look. It is three years old.

Adjusted EBITDA in 2025 was lower in absolute dollars than in 2023 — $1,000M against $1,090M — on 6.5% more revenue. The business grew and earned less for it. That is the whole story of this page in one line, and no single reporting period shows it.

By segment, three different things are happening:

RAS margin has fallen in every full year of the record — 435 basis points from 2023 to 2025, with no interruption. This is the finding the two-quarter view cannot deliver, and it is bad for the thesis: a decline that has run for three years through two different owners is much harder to call transitional than one that shows up the quarter after a spin.

One caveat, and it cuts the other way. Backing 1H out of the full years gives a half-yearly RAS path of 39.4% (1H25) → 31.0% (H2 25) → 33.4% (1H26) — a 240bp improvement on the most recent half. But refrigerants are a cooling-season business and H2 is seasonally weaker, so that sequence mixes season with trend and cannot be read as a turn. It does mean two things: the FY2025 figure of 35.2% embeds a seasonally weak half, and the only clean comparisons on this page are like-for-like halves (1H26 vs 1H25, down 600bp) and full years. We do not have 1H 2024 to size the seasonal amplitude, which is the single most useful disclosure the Q3 filing could give us.

ESM is the mirror image. Flat at roughly 19% for three straight years, then +270 basis points in 1H 2026 to 21.2%. Nothing about the spin caused that; the semiconductor and defense pull-through did. It is the smaller segment — 28% of sales — but it is the only part of Solstice whose earnings quality is improving.

Corporate cost has gone from 3.9% to 5.0% of sales and is still climbing as standalone functions stand up. On $4.3B of 2026 revenue, each further 50 basis points is $21M of EBITDA.

The part that argues against the bear case

The obvious reading of a three-year margin slide in a business facing Chinese capacity expansion is price erosion. The filings say that is not what is happening. Realised pricing has been favorable in every period disclosed:

• 2025: “favorable volume and pricing in refrigerants of $195 million”
• 1H 2026: RAS volume +$95M, pricing +$52M, FX +$22M

Price is rising in both segments. The compression is entirely in cost of goods sold — gross margin fell 310bp from 2023, while SG&A held at 10–11% of sales throughout. Solstice attributes it to “refrigerants product mix as a result of the ongoing transition to LGWP refrigerants”: the new molecules are more expensive to make than the legacy ones they displace, and new capacity carries under-absorbed fixed cost until it fills.

That distinction matters more than anything else on this page. Price erosion in a chemical business is usually permanent — it means a competitor has arrived. Cost absorption on ramping capacity mean-reverts as volume fills the plants. The record is consistent with the second, and 1H 2026’s 11% volume growth is what filling plants looks like. But three years is a long ramp, and the burden of proof has shifted to the company.

What would settle it: RAS margin stabilising or turning up in Q3/Q4 2026 on continued volume growth. If it makes a fourth consecutive annual decline in FY2026, “transitional” stops being a defensible word.

The quarterly detail

Revenue up 11%, EBITDA down 6%, margin down 460 basis points. Decomposed by segment for the first half:

This is the cleanest comparison available — like-for-like halves, same seasonality on both sides. RAS gives up 600 basis points on 12% volume-led growth; ESM gains 170 on 7.6%; corporate cost rises 36% as the standalone load arrives, which was expected and is the one line here that should stop growing once the separation is fully absorbed.

Where Solstice sits in the value chain

Solstice is not one power position. It is three, and they are unusually far apart — which is why a single margin number describes this company badly.

The evidence, and it is the reverse of what we found next door

Most of these questions have to be inferred. Here they can be read off the filings, because Solstice discloses what drove revenue:

• 2025: “favorable volume and pricing in refrigerants of $195 million”
• 1H 2026: RAS volume +$95M, pricing +$52M, currency +$22M

Realised price rose in every period disclosed. That is a materially different answer from the one the same test produces at Qnity, which separated four days after Solstice from a comparable American industrial parent into a comparable advanced-materials business — and which gave price back 1–2% in both segments in both 2024 and 2025, through the strongest semiconductor cycle on record.

Two advanced-materials spinoffs, four days apart, opposite pricing outcomes. The difference is what the protection is made of. Qnity is protected by qualification — a customer must requalify to switch, which is slow, so the socket is safe. But four to six suppliers are qualified in every category and the buyer is TSMC or Samsung, so the price is the customer’s to set. Solstice’s refrigerant business is protected by scarcity — a patent on a molecule that regulation obliges the customer to adopt. Two suppliers, a legal mandate, and a composition patent is a different thing entirely.

Qualification protects revenue. Scarcity protects price. Solstice sits on the better side of that distinction, and the price line is the proof.

And yet the margin still fell — which is the part worth sitting with

Solstice has the stronger power position and its adjusted EBITDA margin went 29.9% → 25.7% across the same period, with RAS falling 435 basis points. Both things are true, and reconciling them is the whole analytical content of this page: price rose and cost rose faster. Gross margin fell 310bp while SG&A held flat, so the compression is entirely in cost of goods sold — the new LGWP molecules cost more to make than the legacy ones they displace, and new capacity carries under-absorbed fixed cost until it fills.

Pricing power is necessary and not sufficient. A supplier who can raise price still loses margin if unit economics deteriorate faster than the price rises. That is the correct reading of this record, and it is more forgiving than the raw margin line suggests — because a cost problem on ramping capacity mean-reverts and a pricing problem does not.

What the Element Solutions deal does to the mix

It moves the average toward the weakest tier. Element sells wet chemistries, solder pastes and assembly materials into printed circuit boards and advanced packaging — qualification-gated, multi-supplier, sold to large sophisticated buyers. Structurally it is Qnity’s position, not the refrigerant business’s.

That is visible in the returns already: Element earns 21.4% and 21.6% segment margins against Solstice’s 25.7%. The page notes this as arithmetic dilution. The value-chain reading makes it structural — Solstice would be paying 26.5x to add roughly $2.5B of revenue in the one tier where it cannot set price, funded partly with paper issued against a business that can.

This is not an argument that the deal is wrong. Element is the best asset available in the fastest-growing end market, and the electronics franchise genuinely needed scale — that case is made in full above. It is an argument that the deal’s cost is larger than the multiple alone implies, because it buys revenue of a lower quality than the revenue funding it. Weigh it alongside the price paid rather than instead of it.

The Element Solutions acquisition

On July 6, 2026, eight months after separating, Solstice agreed to acquire Element Solutions for approximately $14.5B including net debt: $10.00 cash plus 0.500 Solstice shares per Element share, an implied $50.10 and a ~15% premium. Expected close H1 2027, with an outside date of July 6, 2027 that automatically extends to January 5, 2028 for regulatory approvals.

The market’s answer was immediate: −15.1% on 3.7x normal volume, then −8.7% on 4.5x the next session. A −22.5% two-day repricing.

What Element Solutions actually is

Worth establishing before judging the price, because the strategic case is better than the financial one.

Element Solutions (NYSE: ESI) is a specialty-chemicals company built around MacDermid Alpha Electronics Solutions. FY2025 net sales $2,551M, adjusted EBITDA $548M:

Element’s electronics business grew 10% organic in 2025, with Q4 Assembly Solutions +12% and Semiconductor Solutions +13%, driven by data-center, high-performance-computing and advanced-packaging demand.

(Element reports a 26.5% adjusted EBITDA margin against the 21.5% computed here. The difference is pass-through metals pricing — solder is tin and silver, and the metal content flows through revenue at no margin. Both figures are correct on their own basis; the like-for-like comparison with Solstice uses the reported 21.5%.)

The strategic rationale — which is the strongest part of the case

Solstice’s weakest position is electronic materials. Element’s strongest is electronic materials. The fit is genuine.

That is roughly a threefold step-up, and it moves Solstice from a mid-tier participant to a top-tier Western electronic-materials supplier — comparable in scale to Entegris, behind Qnity, and materially larger than it could have become organically. Against competitors of that size, sub-scale is a structural disadvantage in R&D spend and customer qualification. This deal fixes it in one step.

There is also a real chemistry adjacency: both companies formulate specialty materials into customer-specific process flows and sell into qualification-gated positions. Element’s data-center and advanced-packaging exposure is precisely the end-market strength Solstice’s own ESM segment lacks.

So the strategic logic is sound. The dispute is entirely about price — and about whether a company trading at 9.4x should be the one paying 26.5x to fix its weakest segment, rather than waiting, buying something smaller, or building.

Why the market reacted that way

A company issuing equity at 9.4x EV/EBITDA to buy an asset at 26.5x destroys value per share unless the synergies and the strategic case are extraordinary. That is the arithmetic, and it is not a matter of sentiment.

The fixed exchange ratio makes it reflexive

The 0.500 ratio does not float. So as Solstice falls, the consideration Element holders receive falls with it:

The offer has lost 24% of its value since it was struck, and Element’s shareholders still have to vote on it. That is a live deal risk, not a footnote.

Honeywell holds a veto — and this is the part almost nobody has read

The 10-Q discloses that Solstice owes Element a termination fee of $385M or $513M if the deal is terminated in specified circumstances, “including pursuant to a competing proposal or in the event that Honeywell revokes its consent pursuant to the Tax Matters Agreement entered into between the Company and Honeywell, or otherwise seeks to prohibit the Mergers.”

The former parent has a contractual say over whether its spun-off subsidiary may complete this acquisition. That is Section 355(e) — the anti-Morris Trust rule — operating not as an abstract tax risk but as a negotiated consent right with a nine-figure price attached.

It is also why Element holders end up with ~44% of the combined company: six points below the 50% threshold that would make Honeywell’s separation retroactively taxable. The fixed ratio locks that percentage at signing so it cannot drift across the line on price movement.

Element Solutions, for its part, would owe Solstice $376M if it walks.

Financing

A $4.685B bridge facility from Goldman Sachs, since syndicated, with the credit agreement amended on July 24, 2026 to permit it. Permanent financing is intended in term loan B and unsecured notes. Receipt of financing is not a condition to closing — Solstice is obliged to complete the deal whether or not the permanent market cooperates.

Was this an arbitrage overshoot? The evidence says no

A reasonable hypothesis after a −22.5% two-day move in an acquirer is that merger-arbitrage funds were mechanically shorting the stock — long the target, short the acquirer — and pushed it below fair value, creating an opportunity that unwinds at closing. It is testable, and it fails.

The classic arb trade requires the target to trade below deal consideration, so the spread can converge. Here:

Element trades roughly 15% above what the deal would pay. The arbitrage spread is negative — the standard trade loses money and is therefore not being put on at scale. Whatever drove Solstice down, it was not arbitrage supply.

What Element’s price does suggest is that the market assigns real probability to the deal not closing on these terms, or to a revised offer. An acquirer’s shareholders and a target’s shareholders both signalling dissatisfaction is the condition under which deals get renegotiated or abandoned.

Capital allocation

The page has until now said nothing about what Solstice does with its cash. It should, because the cash flow record is the least flattering exhibit on this page and the capital program is the most encouraging one.

The 2025 collapse, and why it is mostly explicable

Free cash flow fell from $546M to $119M. Operating cash flow dropped $387M on a year in which adjusted EBITDA fell only $98M. The bridge is not mysterious — $117M of transaction costs, the mechanics of separating from a cash-pooling parent, and working capital — but the conversion rate is the number to hold: operating cash flow was 77% of adjusted EBITDA in 2024 and 46% in 2025.

The first half of 2026 says it was the year, not the business. Operating cash flow of $461M in six months already exceeds the whole of 2025, and free cash flow is up 45% year on year, from $170M to $246M. On that pace 2026 lands near the 2023–24 range, which is what a normalizing year should look like.

Capital spending is the encouraging half

Solstice has spent between 169% and 184% of depreciation in every period on record, and stepped capex up 54% year on year in the first half — $213M against $138M. For a chemicals business that is a growth program, not maintenance, and it is where the LGWP capacity build shows up.

It also complicates the margin story in the company’s favor. A business adding capacity faster than it depreciates carries under-absorbed fixed cost until the new plants fill — which is precisely the explanation offered for the gross-margin compression, and this line is the corroboration. Capex above depreciation and margin below trend are the same fact seen twice.

The parent took $1.4B on the way out, and then the debt

Net transfers to Honeywell ran $345M, $414M and $684M across 2023–25 — $1,443M cumulative — before the separation loaded roughly $2.0B of drawn debt onto the balance sheet. Extracting cash before loading debt is the ordinary shape of a levered separation; the scale here is modest relative to the business.

What is being returned, and what is not

The dividend is a token and is meant to be. Management says it “currently expects to continue returning cash to shareowners through quarterly dividends” — a commitment to the habit rather than to an amount.

Capital allocation here is not really a choice at the moment, and that is the point. With the Element Solutions transaction pending, a bridge facility committed and permanent financing planned as a term loan B plus unsecured notes, essentially all of Solstice’s financial capacity is spoken for. There will be no buyback and no meaningful dividend growth while that is true.

Which makes the deal-break scenario better than it first looks. A company generating $500M+ of free cash flow, carrying 1.13x net leverage and no transaction to fund, would have an obvious and large use for its own shares at nine times EBITDA. That optionality exists only on the path where the deal does not happen, and it is not in any number on this page.

Valuation, both ways

Because the outcome is binary, the two cases are modeled separately.

A — Standalone: discounted cash flow, if the deal does not happen

Discounted cash flow

Unlevered FCF, FY2027–33, at an 11% WACC. Revenue growth easing 7% → 4% as the LGWP substitution matures; adjusted EBITDA margin recovering 25.2% → 28%, below the 29.8% achieved a year ago; capital expenditure easing 10% → 7% of sales — see the note below, because that assumption has been corrected.

Why 11% for this company. There is no single right rate for every business. The relevant inputs are capital structure, scale, maturity and how predictable the cash flows are, and for a company like this one the defensible range runs from roughly 8% to 12%. Solstice sits in the upper half of it: a three-quarter-old public company, cyclical chemical end markets, a pending transaction that would take leverage to ~3.8x, and realised volatility well above the market. A larger, more mature, less levered business with contracted revenue would be discounted nearer 8%.

The capital-expenditure assumption has been corrected, and it costs about $3 a share. An earlier version of this model assumed capex easing from 8% to 6% of sales. The capital-allocation record above shows that is too low: actual capex was 8.6% of sales in 2025 and 10.1% in the first half of 2026, and Solstice has never spent below 169% of depreciation in any period on file. The model now eases 10% → 7%, which still credits the LGWP capacity build finishing.

Margin path	capex 8% → 6% (prior)	capex 10% → 7% (corrected)
Recovers to 28%	$72	$69
Flat at 25.2% (carried)	$64	$61
Declines to 23%	$58	$55

That model returns $69, or +23% to spot. Solstice standalone trades at 9.4x forward EBITDA with net debt of only $1.22B — 1.13x. For a business with a regulatory-mandated substitution cycle, a monopoly nuclear conversion asset and an improving electronics segment, that is inexpensive.

But the margin assumption is doing almost all of the work. The base case above assumes RAS stabilises and the blend recovers to 28% — a level last seen in 2024. The three-year record shows no such recovery yet. Running the same model across the three margin paths the record supports:

Read the bottom row first: even if the margin decline continues for another seven years, the standalone business is worth roughly today’s price. That is the floor, and it is an unusually well-supported one — it assumes the single worst trend in the business persists uninterrupted for a decade. On the corrected capital-expenditure path that floor is $55 rather than $58, which is 2% below spot rather than 3% above it — thinner, but still a floor rather than a drop.

The cost is at the top. $69 is not a base case, it is the recovery case. We carry $61 as the standalone number, and the range $55–$69 is the honest width.

Earnings-based valuation

The DCF and the EV/EBITDA multiple both flatter this business, for a reason worth naming: the carve-out years carry almost no interest expense. 2023 and 2024 show $16M and $13M of interest against a standalone run-rate of roughly $106M — the debt only arrived at the October 2025 spin. Comparing reported carve-out earnings to reported post-spin earnings therefore measures the capital structure, not the business.

Normalizing all four years to the same basis — full standalone interest, transaction costs excluded, a 24% tax rate (2023 and 2024 both ran 24%; 2025’s reported 56% is spin distortion) — gives the like-for-like earnings record:

*2023 NCI was a $2M loss, which adds. 2026E annualises 1H 2026.

On a like-for-like standalone basis, Solstice earns 14% less per share than it did in 2023, and 2026 is flat against 2025 despite 11% revenue growth. The 9.4x EV/EBITDA that makes this look cheap becomes 18.8x earnings, which does not. Specialty chemicals peers trade at 16–20x. On earnings, Solstice is priced at the middle of its peer group, not below it.

Why the two multiples disagree — and the part that is genuinely hidden

Three things separate 9.4x EBITDA from 18.8x earnings:

1. Depreciation and amortization of $220M — 22% of EBITDA. This is a capital-intensive business, and EV/EBITDA ignores the capital.
2. $1.22B of net debt, which the equity carries and the EBITDA multiple nets at face.
3. ConverDyn — and this is the one almost nobody adjusts for.

Solstice owns 50% of ConverDyn, the uranium-conversion joint venture with General Atomics, but consolidates 100% of it because it is the primary beneficiary. Every EV/EBITDA calculation on this company therefore counts EBITDA that belongs to General Atomics. The size of it is visible in the noncontrolling interest line, and it has gone vertical:

Deducting the roughly $70M of annualised EBITDA that is not Solstice’s takes the standalone multiple from 9.4x to about 10.1x, and the pro-forma combined multiple from 14.1x to roughly 14.8x. Not fatal — but it removes most of the apparent discount to the specialty-chemicals group.

The second-order point is more important. Solstice’s own 50% of ConverDyn has gone from nothing in 2023 to roughly $0.35 a share in 2026. Strip it out and normalized 2026E EPS is $2.65, against $3.48 in 2023 — a 24% decline in the core business, masked at the reported line by a uranium joint venture. The refrigerant franchise is deteriorating faster than the headline numbers show, and the thing offsetting it is a commodity-priced asset the market is not paying a chemicals multiple for.

Cross-check. Three standalone methods: DCF $61 (flat-margin), earnings $56–64 (18.8x on $2.99, or 19–21x — the peer midpoint — on the same), EV/EBITDA at 10.1x attributable against peers at 10–12x giving $60–70. They converge on the high $50s to low $60s, not on $69.

Does the criticism survive at the pre-announcement price?

A fair challenge to everything above: if Solstice’s current price is itself depressed by the deal, then judging the deal by that depressed price is circular. So test it at the price before the announcement.

The direction of the conclusion survives; the magnitude does not.

Even at $80, Solstice was issuing 12.9x paper to buy a 19.9x asset — dilutive on multiple arithmetic, though far less brutally so. The deal was never accretive on multiples; it has simply become much worse as the shares fell.

The more interesting reading is the pro-forma column. At $80 the market was paying 18.5x for the combined company — a full price for a 3.8x-levered integration. At $56.16 it pays 14.1x. So the decline has taken the pro-forma entity from expensive to reasonable, which is a different statement from “the shares are artificially depressed.”

The honest summary: the fall is a repricing, not a distortion. The market was paying a premium multiple for the combined entity in June and is paying a fair one now. That is what repricing looks like, and it is consistent with the negative arbitrage spread — there is no mechanical seller to blame.

B — Preliminary pro forma, if the deal closes

Labeled preliminary because no S-4 has been filed. Both companies are public, so the operating figures below are actual and complete; what remains outstanding is purchase accounting, the final financing mix, and any divestitures required by regulators. Those change the balance sheet, not the earning power.

Combined on reported FY2025 actuals:

(The announcement cited “approximately $6.8B of net sales and $1.7B of adjusted EBITDA.” That sits above the sum of reported 2025 actuals and is presumably a forward or run-rate basis. The figures above are what both companies actually reported.)

The deleveraging case — the strongest argument the bulls have

The question that matters for a levered acquirer is not today’s multiple but what happens as free cash flow retires debt. Hold the share price flat at $56.16, grow revenue 6%, let margin drift up modestly on scale, phase the $180M of synergies over three years, and apply all free cash flow to debt:

Without the share price moving at all, the stock goes from 14.1x to 10.6x in two years and 7.1x in five, and leverage falls from 3.8x to nearly nothing. The equity captures every dollar of debt repaid.

What that is worth. At year five — $2,334M of EBITDA and essentially no net debt — an 11x EV/EBITDA multiple implies roughly $91 a share and 12x implies $99, against $56.16 today. That is a 10–12% annualised return, achieved with no multiple expansion whatsoever.

This is the case for owning it, and it deserves to be stated as strongly as the criticism of the price paid. A 10–12% annual return from deleveraging alone is respectable. It is also, precisely, a market-rate return — roughly equal to the cost of equity used to discount it. The deleveraging case makes Solstice fairly valued, not cheap, which is why the rating below is HOLD rather than BUY.

What would make it cheap is the same thing that would make it a BUY: margins turning, so that the EBITDA line above compounds faster than 6% revenue growth and flat margin implies. The model above deliberately assumes no recovery in the RAS margin that has fallen 600bp. Restore even half of that and every figure in the table improves materially.

Growth — the half of the story the margin debate obscures

Margin has dominated this analysis because margin is what moved. Growth is what the business is actually being bought for, and on that measure every line Solstice sells into is expanding:

And the companies are capturing it. Solstice grew revenue +11% in the first half. Element’s Electronics segment grew 10% organic in 2025, with Q4 Assembly Solutions +12% and Semiconductor Solutions +13% on advanced packaging demand.

The two fastest-growing exposures — data center materials and HFO refrigerants — are precisely where this deal concentrates the company. Data center construction is plausibly the largest single capital-spending program of the next several years, and Element sells the chemistry that forms and joins the circuitry inside it. That is the strategic case, and it is a growth case, not a cost-synergy case.

It also means the 6% blended growth used in the deleveraging model above is conservative, not aggressive. At 8% every figure in that table improves.

Where 12–14x EV/EBITDA sits against the market

Solstice pro-forma sits at 14.1x at close and 12.3x a year later — the top of the specialty-chemicals range, and a small fraction of where semiconductor materials trade. Which is right depends entirely on how the market classifies a company that would have ~40% of revenue in electronics.

Sum-of-the-parts on the combined company, valuing electronics-facing revenue (~$2,700M, ~$594M EBITDA) separately from everything else (~$3,737M, ~$960M EBITDA at 11x):

At today’s price the market is implicitly valuing the combined electronics franchise at roughly 18x EV/EBITDA — a premium to specialty chemicals, but around half of where semiconductor materials trade. Re-rating that franchise even to 25x, still well below its sector, is worth $69 a share.

That is the case for the deal creating value despite the price paid: Solstice is buying an asset at 26.5x that the market may eventually value at a semiconductor-materials multiple rather than a chemicals one. Management may be paying a full price for a re-rating it expects to capture.

Price target: $62 · range $55–85 · BUY

Path	Value	Basis
Deal breaks — standalone DCF, flat margin	$61	11% WACC, 11x exit, margin 25.2%, capex 10%→7%
Deal breaks — margin recovers to 28%	$69	the recovery case; the record does not support it as a base
Deal breaks — margin decline continues to 23%	$55	the floor: seven more years of the current trend
Deal breaks — return to the pre-deal price	$80	where it traded on July 2
Deal closes — 13–14x EV/EBITDA on year-one pro-forma	$61–67	EBITDA $1,715M, net debt already $5.1B
Deal closes — electronics re-rated to 25x in a sum-of-the-parts	$69	still below its sector
Deal closes — five years of deleveraging, no re-rating	$91–99	10–12% annualised

Base $62 is +10% to the August 21 close.

Recommendation: BUY — on the floor, not the ceiling. The asymmetry is still the argument, but it is narrower than it looks:

• If the deal breaks, the standalone business is worth $55–$69 against $56.16 today. Honeywell holds a consent right that could cause exactly this. The low end of that range assumes the worst trend in the business runs uninterrupted for another seven years and still clears today’s price.
• If the deal closes, you own three growing franchises — refrigerants with a legislated substitution cycle, a uranium-conversion JV in a four-firm global market, and a top-tier electronics business selling into the data-center build — at 12.3x EV/EBITDA a year out, deleveraging to 7.1x by year five.

Both outcomes pay, and the downside is bounded by an unusually durable floor. That is what this buy rests on — not on a margin recovery that three years of segment data do not yet support.

On the price management paid

Earlier drafts of this analysis weighted the 26.5x EV/EBITDA purchase price heavily against the investment case. That conflates two different questions. What Solstice paid Element’s shareholders is a judgment on management. What you pay for the combined company is a separate matter, and at $56.16 you are buying the whole thing at 14.1x falling to 12.3x — the top of the specialty-chemicals range for a business with ~40% of revenue in electronics and every end market growing.

The overpayment, if it was one, has already been marked in the price. The −22.5% reaction was the market transferring that cost from Element’s shareholders to Solstice’s. A buyer today inherits the asset without having paid the premium.

What would still make this wrong: the RAS margin decline proving structural rather than transitional, or the combined entity failing to hold a specialty-chemicals multiple at 3.8x leverage. Both are live, and both are why the target is $70 rather than $85.

Sizing note. This is a levered, event-driven position with a binary catalyst and 3.8x pro-forma leverage. The asymmetry justifies owning it; it does not justify owning a lot of it before the Element vote resolves.

What this most resembles

Matching on what should drive the outcome — a fluorochemistry business spun from a diversified industrial parent, high margin, levered on the way out — the universe offers a small but pointed set.

Two of six beat; median excess −6.2pp, close to the universe median of −7.2%. Chemicals spinoffs are ordinary. What is not ordinary is the drawdown column: four of six fell more than 60%, and two fell more than 87%.

Chemours is the analog that matters, and the reason it matters is not the

return

DuPont spun its fluoroproducts business in July 2015 — the same molecular chemistry, and its Opteon refrigerant line competes directly with Solstice. The shares fell more than 87% within a year of separation, on fears that legacy PFAS environmental liability inherited from the parent would overwhelm the equity.

Solstice does not carry that liability. Its recorded environmental reserve at year-end 2025 was $53 million, and the word “PFAS” does not appear anywhere in its 10-K. The nearest equivalent is a bounded, regulator-supervised asset retirement obligation at the nuclear conversion facility, backed by letters of credit.

That absence is the single most important structural difference between Solstice and the cautionary tale its business most resembles, and it is worth checking rather than assuming, because the assumption has cost people a great deal of money in this exact chemistry.

In depth: competitive dynamics

The sections above establish what happened and what it is worth. The three that follow go underneath that — who Solstice competes with, how it is valued against them, and who might eventually own it.

1. Where Solstice competes, and against whom

2. Market concentration

✅ Effective duopoly in the molecule that matters. HFO-1234yf — the automotive refrigerant mandated across regulated markets — is principally a Solstice / Chemours market. Patent estates, fluorine feedstock integration and OEM qualification make entry slow. This is the single best competitive position the company holds.

✅ Four-firm global oligopoly in uranium conversion, and Solstice co-owns one of the four through ConverDyn, its joint venture with General Atomics. More important than the 18.3% share: with Rosatom’s 26.5% effectively unavailable to Western utilities, the practical Western market is Orano, Cameco and ConverDyn. ConverDyn is the only US-domiciled option in a market where supply-chain domesticity has become policy.

⚠️ Sub-scale in electronic materials — standalone. Solstice is a participant, not a leader, against Entegris, Qnity, JSR and Merck EMD.

✅ The acquisition genuinely fixes this. Element’s Electronics segment is $1,786M of revenue growing 10% organic, with Q4 semiconductor solutions +13% on advanced packaging. Combined electronics-facing revenue of ~$2.5–2.9B puts the merged company at roughly Entegris scale — behind Qnity, ahead of most others, and past the threshold where R&D spend and customer qualification stop being a structural handicap. Whatever the price, the competitive logic is real, and it is the reason a break-up of the combined entity would be harder than a break-up of Solstice today.

3. Moats and weak spots

✅ Strongest moat: regulatory-mandated substitution. The AIM Act and equivalent regimes do not merely encourage LGWP refrigerants — they require them on a schedule. Demand is legislated rather than forecast, which is a materially better foundation than a cyclical end market.

✅ Strong moat: the conversion monopoly. Uranium hexafluoride conversion requires NRC licensing, decades of operating history and a facility nobody is going to permit quickly. Metropolis 2.0 — a proposed second facility — suggests management sees the demand.

✅ Qualification lock-in in healthcare packaging. Aclar is written into pharmaceutical filings; changing barrier film means re-filing.

⚠️ Weak spot: the transition compresses margin before it expands it. RAS margin fell 600bp while the substitution accelerated. The new molecules are the future; they are not yet the better business.

⚠️ Weak spot: sub-scale in electronics. Being seventh in a market of giants is not a position, which is precisely management’s argument for the acquisition.

❓ Emerging question: what replaces HFOs? Regulatory pressure that created the HFO opportunity does not stop at HFOs. Natural refrigerants — CO₂, propane, ammonia — are being pushed in parts of Europe, and trifluoroacetic acid, an HFO breakdown product, is under regulatory attention there. The molecule that is today’s tailwind could be tomorrow’s phase-down, on a decade-plus horizon.

4. Head-to-head: Solstice vs Chemours

The closest listed comparison, and the numbers are more flattering to Solstice than the market’s treatment of the two suggests:

Read that table carefully, because it cuts both ways.

✅ Solstice earns a 10-point higher blended margin and is profitable where Chemours is posting large GAAP losses. Chemours’ losses are legacy environmental — PFOA drinking-water accruals and litigation settlements — the liability Solstice does not carry.

⚠️ But in the directly comparable refrigerant segment, Chemours’ TSS runs 36.0% against Solstice’s RAS at 32.9%. A year ago Solstice’s RAS was at 39.4%. Solstice’s refrigerant margin has moved below its closest competitor’s.

Two data points across a single year do not establish a trend, and there are benign explanations: Chemours flagged a strong prior-year comparison in TSS aftermarket, the two companies’ mix and channel exposure differ, and the AIM Act transition is hitting each on a different schedule. This is recorded as something to monitor across the next several quarters, not as a conclusion, and the right next step is to ask management directly for the bridge.

(Chemours’ TSS is refrigerants alone; Solstice’s RAS also contains lower-margin healthcare packaging and nuclear services, so the comparison overstates the gap. Tracked quarterly from here.)

In depth: valuation against peers

1. Margin positioning

Chemours’ blended margin is dragged by Titanium Technologies, a commodity business Solstice has no equivalent of. On mix, Solstice is the cleaner specialty business of the two.

2. Where Solstice trades

The internally inconsistent triangle. A company trading at 9.4x is issuing that paper to buy an asset at 26.5x. Either the market is wrong about Solstice, or management is wrong about Element Solutions, or Element is worth nearly three times Solstice per unit of EBITDA. All three cannot hold, and the −22.5% reaction was the market saying which one it believes.

We do not publish peer trading multiples we cannot source from primary documents. The multiples above are computed from filings and the announced deal terms; broker consensus multiples for Arkema, Celanese and others were not independently verifiable and are therefore omitted rather than estimated.

3. What the standalone multiple implies

At 9.4x, the market is valuing Solstice below where specialty chemistry with a legislated demand driver and a monopoly nuclear asset would normally clear. Applying the deal’s own logic — Solstice believes 19.9x post-synergy is a fair price for a ~24%-margin electronics business — the company’s own revealed view of fair value for a business like itself is far above where its own shares trade.

That is either an argument that the shares are cheap, or an argument that management is overpaying. It cannot be neither.

In depth: is Solstice an acquisition target?

Not before October 30, 2027 — but the question worth asking is who buys it after that, and the answer is more interesting than for most spinoffs this size.

Why it is blocked now

The §355(e) window from the Honeywell separation runs to October 30, 2027: an acquisition of 50% or more inside two years is presumed part of a plan related to the distribution and would make the separation taxable to Honeywell, with the cost landing on Solstice under the Tax Matters Agreement. On top of the statute, the Merger Agreement contains a no-shop, and the 10-Q concedes these provisions “may discourage a potential third-party acquirer.”

So Solstice is doubly locked: by tax law until October 2027, and by its own merger agreement until that deal resolves.

Who the buyers are once it clears

Standalone enterprise value is roughly $10B — comfortably digestible, unlike most large spinoffs. If the Element deal closes, that rises to roughly $22B and the buyer list shortens considerably. The two scenarios are genuinely different, which is itself a reason the deal’s outcome matters beyond the price.

Break-up or takeover? The deal decides it

Solstice’s three franchises have three different natural owners, and none of them wants all three. That is unusual and it is the most interesting structural fact about the company:

The sum-of-the-parts question this raises. A conversion monopoly, a mandated-substitution chemicals franchise, a defense fibre and a qualified pharmaceutical packaging business sit inside one 9.4x multiple. Each would likely clear at a higher multiple standing alone, and to different buyers.

The Element Solutions acquisition cuts against this, and that is an argument in its favor. It makes electronic materials a coherent, top-tier franchise rather than a sub-scale orphan — which is the one segment that most needed fixing and the one a break-up would have struggled to place well. The cost is that the combined company is larger, more levered and harder for anyone to buy, so it defers the break-up option rather than resolving it.

Both readings are legitimate. If you believe the sum of the parts exceeds the whole, the deal destroys that option. If you believe electronics needed scale to be worth anything, the deal creates the value a break-up could not. The price paid is what decides which is true, and at 26.5x it is a close call.

Probability, stated as judgment rather than fact:

The investment case does not depend on a takeover. It depends on the standalone margin recovering and on the acquisition being priced sensibly. The acquisition optionality is a 2028 conversation, and it is worth more if the Element deal does not happen.

A possible transaction: does Qnity buy the electronics business?

Speculative, and set out because the pieces fit unusually well.

Once the Element acquisition closes, Solstice would hold roughly $2.5–2.9B of electronics-facing revenue alongside a refrigerants franchise and a uranium conversion JV — three good businesses with almost nothing in common. The natural question is whether someone eventually buys the electronics half.

Qnity Electronics is the obvious candidate, and the fit is better than it first looks:

Why it probably does not happen soon. Solstice would be selling, at some price, an asset it had just paid 26.5x EV/EBITDA for. Doing that within two or three years would be an admission that the acquisition was a mistake, and no management team volunteers for that. Realistically this is a 2029–2030 conversation, not a 2028 one — after integration, after the synergies are banked, and after the electronics franchise has a standalone track record worth paying for.

Why it is worth writing down anyway. It reframes the Element acquisition. If Solstice is assembling an electronics business of genuine scale, it is creating something with a natural buyer at a semiconductor-materials multiple rather than a chemicals one. That is a coherent value-creation path even if the entry price was full — buy at 26.5x in a chemicals wrapper, sell at a semiconductor multiple once the scale is visible.

Whether that is the plan or a retrospective rationalisation is unknowable from outside. It is, however, the most plausible answer to “why pay that much.”

Tail scenarios

Outcomes outside the base/bull/bear frame — low probability, high magnitude, but short of black swan. Roughly two to three standard deviations.

Upside tails

1. The nuclear asset stops being a rounding error. This is the largest mispriced optionality on the page, and the filings are unusually explicit about it. Solstice’s AES Facility is, in the company’s own words, “the only U.S.-based supplier” of uranium hexafluoride conversion, and “together with our joint venture partner General Atomics, we are the only provider of these services in the U.S.” The earnings ramp is already visible:

Solstice’s own half runs alongside it. A business that contributed nothing in 2023 is contributing roughly $0.35 a share in 2026, and it is accelerating, not maturing. Conversion is a three-supplier Western market; the US restriction on Russian enriched uranium removed a large source of supply, and datacenter-driven nuclear demand is arriving on top. The Department of Energy has separately agreed to act to assure the facility’s continued operational availability, including reimbursing certain litigation costs — a level of state support that tells you how strategic the asset is.

If Solstice’s share of conversion earnings reaches $100M pre-tax and a strategic buyer — General Atomics has the first call — paid 15x, that is $1.5B, or about $9 a share, against an asset the market is currently valuing inside a specialty-chemicals blend. The market is paying a chemicals multiple for a regulated national-security monopoly.

2. Honeywell blocks the deal and the RAS margin turns. Two independent things both breaking right. The standalone recovery case is $69; a business demonstrably back on a 28% margin would not trade at 11x exit, and the same model at 13x reaches $82. This is the only path to a materially higher price in the next eighteen months.

3. Electronic & Specialty Materials gets valued for what it is. ESM is earning 21.2% and rising, in semiconductor and defense materials, against a semiconductor-materials peer group at ~35x. At even 20x its $203M of EBITDA, ESM alone is $4.1B against a $10.1B enterprise value — leaving the refrigerant and nuclear franchises at roughly 6x. If the Element deal closes, this stops being a tail and becomes the stated strategy, which is the strongest argument for the transaction that management has not made forcefully enough.

Downside tails

1. Chinese HFO capacity arrives before the patents run out. The 10-K names this directly: “If third parties expand their manufacturing capacity for refrigerants in China (including in respect of HFOs), third-party infringement of our intellectual property rights may increase.” And the protective wall is already thinning — on R-1234yf, “certain patents relating to applications of the technology have expired or are near expiration,” with composition patents running only “into the 2030s.”

This is how the HFC generation ended, and Solstice was the beneficiary that time. A molecule protected by composition patents earns 35–40% margins; the same molecule off-patent with Chinese capacity earns 15–20%. RAS at 20% instead of 35% is roughly $420M of lost EBITDA — more than 40% of the whole company’s earnings. The timing is a decade out, which is precisely the horizon a DCF terminal value is most sensitive to and least able to see.

2. The REACH Recast captures fluorinated chemistry. The company lists among its risks “other potential future regulations related to fluorinated chemistries … such as the REACH Recast, a large-scale revision of the current REACH regulation that will … expand the in-scope hazardous substances subject to REACH.” The entire LGWP thesis assumes regulators keep pushing users toward Solstice’s molecules. A European regime that treats fluorinated chemistry as the problem rather than the solution inverts the central driver of the business. Low probability on any given year; not remote over a decade.

3. The AES radiation litigation certifies as a class. Eight cancer suits were settled in 2024. Still live: municipal contamination claims from the city of Metropolis and Massac County, a personal-injury case, and a class action on behalf of every property owner within three miles of the plant. The company expects rulings on both summary judgment and class certification in 2026 and says it does not anticipate a material effect. Class certification would change that arithmetic, and it is a dated binary inside the next four months — sitting under the same asset that carries the largest upside tail above.

4. The deal closes into an electronics cycle top. Solstice would be paying 26.5x for Element at 3.8x pro-forma leverage, into semiconductor end markets at peak. If Element’s electronics EBITDA falls 25% post-close, combined EBITDA goes to roughly $1,450M and leverage to ~4.1x. A levered chemicals roll-up in a downcycle does not hold 14x; at 10x, the equity is worth about $8.6B across ~284M pro-forma shares — near $30 a share. This is the genuine tail risk of the transaction, and it is the mirror image of the deleveraging case above: the same leverage that compounds equity value at 24% margins destroys it at 20%.

What would change this view

Investment Scorecard

Scored on the five weighted dimensions set out in our methodology.

What the capital-allocation and value-chain work changed: nothing, deliberately

Both sections were added after this grade was set, and the evidence in them nets out rather than moving a dimension:

• Financial Profile stays at 3.0. Against it: 2025 free cash flow of $119M against $546M in 2024, and cash conversion falling from 77% of adjusted EBITDA to 46%. For it: the first half of 2026 already exceeds all of 2025 on operating cash flow, free cash flow is up 45%, and capital expenditure at 169–184% of depreciation is growth spending rather than maintenance — the same fact that explains the under-absorbed fixed cost in the margin line.
• Competitive Position stays at 4.5. The value-chain section adds a genuine positive the original grade did not price — demonstrated pricing power, which the refrigerant patents and the AIM Act mandate together explain. Against it, the weakest of the three tiers is the one the Element acquisition would enlarge.

Neither is a small finding; they simply point in opposite directions within the same dimension. Recording that is more useful than moving a number by a quarter-point in either direction.

First grade for this company

Solstice has been carried as a completed spinoff without a grade since separation. A− (3.63) is where the scorecard lands.

An earlier draft scored 3.75 on a 3.5 Financial Profile, before the three-year segment history was pulled. That history moved Financial Profile to 3.0 — the margin decline is three years old, not two quarters — which is a genuine markdown and lands the score at 3.63. The band does not change, and it should not: the evidence changed the quality of the financial record, not the quality of the franchise.

An earlier draft scored it B+ (3.28), marking down Strategic Rationale and Management for the price paid for Element Solutions. That was double-counting a single objection — the purchase price is already reflected in the share price a buyer pays today, and penalising the strategy and the management for it as well charges the same fact three times. The strategic logic is sound, the end market is the fastest-growing one available, and the team executed decisively. The price is a valuation input, not a character flaw.

The grade takes effect with the next published report.

What would take it to A: RAS margin stabilising for two consecutive quarters, or the combined electronics franchise beginning to earn a semiconductor-materials multiple rather than a chemicals one. What would take it back down is evidence that the RAS decline is structural, or an integration that consumes the synergies.