2020 Active-Passive Investor Summit - October 2020
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2020 Active-Passive Investor Summit
October 2020
Starboard used this deck in a presentation at the Active-Passive Investor Summit on October 8, 2020. Please note that this version of the deck differs from the version used at the conference. This presentation is for informational
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1
Corteva, Inc.
2
Corteva Was Spun-Out From DowDuPont in 2019
Corteva, Inc. (“Corteva” or the “Company”) was one of three independent companies created following the merger of Dow and DuPont in
September 2017.
Merger Completed in 2017
Materials Science Specialty Products Agricultural Science
Spun-out in April 2019 Spun-out in June 2019 Spun-out in June 2019
Corteva was spun-out as a pure-play agricultural science company following the merger of Dow and DuPont.
Source: Public company filings. 3
Corteva Is a Leading Agricultural Science Company
Corteva is one of the largest providers of agricultural seeds and crop protection chemicals to farmers around the world.
The Company sells seeds and crop protection chemicals to farmers through agents, distributors, and retailers in over 140 countries.
Corteva’s Key Products
Seeds
Crop Protection Chemicals
Corteva is one of the largest providers of seeds and crop protection chemicals globally.
Source: Public company filings, presentations and transcripts. 4
Corteva Is One of Three Companies with Global Scale in Both Seeds and
Crop Protection Chemicals
Largest Global Integrated Seeds and Crop Protection Companies by Revenue(1)
($ in billions)
Acquired Monsanto in 2018
and is a subsidiary of
Bayer AG – a European Only remaining pure-play
conglomerate U.S. publicly-traded
integrated seeds and crop
$22.2
protection company with Acquired in 2017 by
global scale ChemChina, a Chinese
State Owned Enterprise
$13.8 $13.6
Seeds Crop
Protection
Seeds Crop Seeds Crop
48% 52% Protection Protection
55% 45% 23% 77%
(2)
Corteva is one of three companies globally with leading seed and crop protection products.
Source: Public company filings, Bloomberg. Note: Peer group classifications have been made based on information believed to be reliable, however, such categorizations involve elements of subjectivity.
(1) Revenue shown for FY 2019.
(2) Assumes EUR to USD conversion rate of 1.1213. 5
We Believe the Combination Was Highly Strategic
The combination of Dow and DuPont’s agricultural businesses was highly complementary from both a product portfolio and technology perspective,
and created a market leader across multiple categories.
Agriculture
Pre-Merger Revenue: $5.9 billion(1) Pre-Merger Revenue: $8.3 billion(2)
Highly productive R&D organization. Best-in-class seed yields.
Strong relationships with retail and distribution partners. Global brand awareness and strong customer loyalty.
Sales Breakdown(3) Key Discoveries Sales Breakdown(3) Key Brands
Seed
20% Crop
Protection
30%
Crop Seed
Protection 70%
80%
Dow AgroSciences and DuPont Agriculture were highly synergistic businesses.
Source: Public company filings and presentations. (1) As of FY 2016. Excludes contributions from the Brazil corn seeds business that was divested to CITIC Agri Fund as part of the anti-trust remedy. (2) As of FY 2016. Excludes contributions from the
portion of DuPont’s crop protection business that was divested to FMC Corporation as part of the anti-trust remedy. (3) Sales breakdown per pg. 8 of Company’s May 2019 Investor Presentation 6
We Also Believe the Combination Has Strong Operational Merits
Management presentations suggest that Corteva has an opportunity to realize $1.9 billion in cumulative cost savings, representing nearly 100% of the
Company’s EBITDA at the time of the combination in 2017.
Excerpt of Corteva Management Presentation Highlighting Operational Synergy Potential
There is significant opportunity to streamline operations as a result of the combination.
Source: Public company filings and presentations. 7
Corteva Financial Summary
Corteva has an enterprise value of $25 billion and sells both seeds and crop protection chemicals in over 140 countries around the world.
Financial Snapshot 2019 Revenue Breakdown
($ in millions, except per share data)
Stock Price (10/02/20) $29.37
Shares Outstanding 748.6
Market Cap $21,985 APAC
(1)
9%
(+) Long-Term Debt 1,102
(-) Cash & Equivalents (2,869) EMEA
Crop North
(+) Minority Interest 240 20%
Protection America
(2) 45% Seed
(+) After-Tax Pension Liability 4,771 55% 50%
Enterprise Value $25,229 LatAm
21%
TEV / Consensus 2021 EBITDA 11.3x
Price / Consensus 2021 EPS 17.9x
2021 Consensus Dividend Yield 1.9%
Corteva has a significant presence in all regions globally.
Source: CapitalIQ, Wall Street consensus estimates, public company filings. Market data as of October 2, 2020.
(1) Excludes commercial notes and other short-term debt used to finance seasonal working capital. (2) Assumes tax rate of 21%. 8
In Seeds, Corteva Distinguishes Its Product Offering Through Best-In-
Class Yield(1)
More crops equals more money for farmers, and as a result, yield is typically the most important consideration for farmers when they choose a seed
provider.
Crop Yield Example – Field Corn
Ear of corn
Kernels
(~90,000 kernels
equals one
bushel of corn)
Farmers want to maximize the number of bushels they can sell by buying seeds that yield more ears per plant and more kernels per ear
We believe yield is typically the most important criteria for farmers when they decide what seed to purchase.
Source: Public company filings and presentations.
(1) Yield advantage based on investor presentation from Corteva on August 17, 2020 that listed a 8.2 bushel / acre advantage vs. peers in corn, and a 6.9 bushel / acre overall advantage for all crops. Categorizations of yield as “best-in-class” are statements of
opinion. While such statements are based on information believed to be reliable, however, they may incorporate certain assumptions. 9Corteva’s Seed Yields Have Been Developed Through Decades of
Intensive Research & Development
The breeding programs Corteva uses to continuously improve yield potential in its seeds – also referred to as germplasm – are time-intensive, involve
trial-and-error, and over time, create a nearly insurmountable barrier for new entrants.
Simplified Example of a Breeding Program – Field Corn
Continuous cycle of
breeding different plants to
create germplasm with
greater yield potential
Select germplasm from high- Grow crop from selected
yielding plants for cross breeding germplasm and send back to R&D
center for study
Corteva has spent decades improving the yield potential in its germplasm through highly time-intensive breeding programs.
Source: Public company filings. 10Corteva Helps Farmers Protect Crop Yields Through Its Innovative Crop
Protection Offerings
Aside from common crop chemicals, Corteva has also developed the Enlist system, a paired trait and crop protection offering, that provides farmers
with crops that have been genetically enhanced to be resistant to common broad-spectrum chemicals.
Corteva believes its Enlist soybean system could eventually be adopted by 50% of the U.S. market.
There is additional upside if primary competitor Xtend is restricted from the market due to dicamba drift issues.
Enlist Soybean U.S. Market Opportunity
Combining chemicals and
traits into a single
complementary offering
expected to drive significant
value for Corteva
We believe Corteva can create more compelling offerings by increasing collaboration between its seeds and crop protection chemical segments.
Source: Public company filings and presentations 11We Believe Corteva Has a Tremendous Product Portfolio and Is Well
Positioned for the Future
Corteva has best-in-class germplasm, compelling trait technologies, and a pipeline of innovative crop protection chemicals that should help the
Company cement itself as a market leader.
We are aligned with the Board and management in our view of Corteva’s asset quality.
“…a superior portfolio of solutions and a highly productive innovation engine, will offer growers greater choice and competitive price for
value…At spin, this company will be a true Ag industry pure-play, offering investors a compelling investment thesis.”
Edward Breen, Former Corteva Board Member
September 2017
global leader in corn seed technologies. We're already a global leader in Green
“…we don't have to go out and invent our future. We're already the
Chemistry solutions. We have a phenomenal insecticide offering with our Spinosyns…So clearly, this is going to be our decade
in soybean seed technology. And this is also the opening of a new era in terms of our presence in the retail channel. So we don't have to go out and invent that future. It's here, and
it's right now.”
James Collins, Chief Executive Officer
September 2020
We agree that the Company has the right portfolio of assets to realize success in the long-term.
Source: Public company filings and transcripts. 12However, We Believe the Company’s Performance Has Not Yet Lived Up
to Its Potential
Adjusted EBITDA since the merger of Dow and DuPont has remained flat despite expectations of achieving $1.0 billion in cumulative cost synergies
by the end of 2020.
Adjusted EBITDA and Margins Since 2017 DowDuPont Merger
($ in billions)
14.5% 14.4%
EBITDA and
13.7% 13.9%
margins remain
nearly unchanged
$2.1 since the
$2.0 $2.0 DowDuPont
$2.0
merger
(1)
2017 2018 2019 2020E
Sales $14.2 $14.3 $13.8 $14.0
($bn)
Adj. EBITDA % Margin
There seems to be significant opportunity to improve EBITDA given substantial merger synergies.
Source: Public company filings.
(1) 2020E financials based on Corteva management guidance on Q2 2020 earnings press release. Revenue growth assumes midpoint of 1% - 2% net sales growth guidance, and Adj. EBITDA based on midpoint of $1.9 - $2.0 billion guidance. 13A Comparison To Peers Suggests Significant Opportunity for
Improvement
With Corteva’s scale and the quality of its product portfolio, we believe the Company has an opportunity to close the margin gap to peers.
FY 2019 Adjusted EBITDA Margin for Corteva and Peers(1)
Sales $4.6 $8.8 $13.6 $13.8 $14.6 $22.2
($bn)
28.5%
26.5%
22.3% 22.7%
18.9%
100% 14.4% 75% 25%
19% 81% 48% 52%
23% 77%
55% 45%
(2) (3) (4)
FMC BASF Ag Solutions Syngenta Corteva Monsanto Bayer Crop Science(2)
(FY 2017)
% of Sales - Seeds % of Sales - Crop Protection
Corteva has an opportunity to significantly improve its profitability over time.
Source: Public company filings, Wall Street consensus, Starboard estimates. (1) The peer companies identified here reflect Starboard’s assessment of what firms can reasonably be considered CTVA’s peers in the agricultural seeds and crop protection chemicals
industry. However, this analysis contains elements of subjectivity and the comparisons made herein may differ materially if different firms had been included. (2) Corporate costs allocated based on revenue contribution. Revenue converted from EUR to USD at a rate
of 1.1213. (3) Adj. EBITDA defined as operating income before restructuring & impairment plus D&A expense less capitalized development costs. (4) Adj. EBITDA defined as Ongoing Gross Profit less Ongoing Operating Expense plus D&A expense. 14Seed Segment Margins
15In Seeds, Despite Impact of Royalty Expense, We Believe There Remains
Room For Improvement
Corteva has a tremendous seed franchise, with best-in-class yields, valuable trait technologies, strong customer loyalty, and global scale – we believe
there is an opportunity to significantly improve profitability.
Seed Segment EBITDA Margin Comparison
1290bps Difference
33.1%
20.2%
Impact of Royalty
7.4%
Payments(2)
Current Seed
12.8%
EBITDA Margin(1)
(3)
Corteva - 2019A Monsanto - 2017A
Sales
$7.6 $10.9
($bn)
We believe Corteva can significantly improve profitability in its seed business.
Source: Public company filings, Starboard estimates. Note: Peer group classifications have been made based on information believed to be reliable, however such categorizations involve elements of subjectivity. (1) Includes corporate expenses allocated based on relative
revenue contribution. (2) Corteva recognized $800 million in royalty expense in FY 2019, of which we estimate $240 million is amortization of upfront payments and $560 million is a cash expense that is not already added back in the Company’s definition of Adj.
EBITDA. (3) Adj. EBITDA defined as Reported EBIT plus unusual items plus D&A expense plus corporate costs allocated based on relative revenue contribution. 16Crop Protection Segment Margins
17In Crop Protection, We Also Believe There Is Significant Opportunity to
Improve Profitability
We believe Corteva has similar scale and product portfolio quality as peers, and should be able to leverage its assets to achieve similar levels of
profitability.
Crop Protection Chemical Segment EBITDA Margin Comparison (FY 2019)
26.5%
Peer Average: 24.0%
23.3%
22.3%
16.2%
(1) (1)(2)
FMC CTVA - Crop Protection BASF - Ag Solutions Syngenta - Crop Protection
Sales
$4.6 $6.3 $8.8 $10.5
($bn)
We believe Corteva can significantly improve profitability in its crop protection chemicals business.
Source: Public company filings, Starboard estimates. Note: Peer group classifications have been made based on information believed to be reliable, however such categorizations involve elements of subjectivity. (1) Includes corporate expenses allocated based
on relative revenue contribution.
(1) Includes corporate expenses allocated based on relative revenue contribution. (2) Assumes EUR to USD FX conversion rate of 1.1213. 18We Believe Significant Value Can Be Created For All Shareholders
Through Improved Execution
We believe Corteva can create substantial value for shareholders through improved operational execution, which will inspire greater confidence from
shareholders, and lead to an improved valuation multiple.
2019A 2022E(1)
Revenue $13.8B $14.7B
2019 – 2022 CAGR 2.0%
Adjusted EBITDA $2.0B $3.4B
Margin (%) 14.4% 23.0%
EV/EBITDA
Current Price YE2021 Target At Current Multiple = ~$47
$29.37 YE2021 Target At High End of Peers’ Multiple = ~$55
We believe a substantial value creation opportunity exists at Corteva.
Source: Public company filings, Starboard estimates. Market data as of October 2, 2020.
(1) Assumes enterprise value includes after-tax pension liability of $4.8 billion (21% tax rate). 19In Summary, We Believe Corteva Is a Compelling Investment Opportunity
High Barriers to Entry
Strong Customer Loyalty
Compelling Products & Technologies
Acyclical End Markets
Significant Margin Improvement
Opportunity
Compelling Valuation
We believe Corteva represents a compelling investment opportunity.
20ON Semiconductor Corporation
21Company Overview
ON Semiconductor Corporation (“ON,” or “the Company”) is a leading provider of semiconductor-based solutions that has grown through organic
and inorganic initiatives.
Financial Overview Select Acquisitions
($ in millions, except per share data)
Stock Price (10/07/2020) $23.35
2019 2016
(x) Shares Outstanding 412.7
Market Cap $9,637
(+) Debt / NCI 4,764
(-) Cash & Investments (2,060) $1.0bn $2.5bn
Enterprise Value $12,340
TEV / Consensus FY21E EBITDA 10.0x 2014 2011
Price / Consensus FY21E Earnings 17.8x
$405mm $366mm
ON is a premier semiconductor company that has grown by investing in R&D and acquiring businesses
Source: Capital IQ, Wall Street consensus estimates, public company filings. Market data as of 10/7/20. 22Strong End-Market Exposure
ON serves attractive end-markets.
Attractive End Markets1 Long Product Cycles2
Computing
11% 0-3 Years
Auto. 21%
Consumer
11% 33%
7+ Years
47%
Comm.
19% 3-7 Years
32%
Industrial
26%
ON sells products across diversified, attractive end-markets
Source: Public company filings, public company presentation.
1. Based on 2019 revenue.
23
2. Based on 2018 revenue.ON Has Had a Few Challenging Years
Although ON’s revenue has recently been impacted by an industry-wide slowdown, ON’s profits have been disproportionately affected due to its fab
heavy model.
2014A-2020E Non-GAAP Revenue 2014A-2020E Adj. Gross Profit 2014A-2020E Adj. Operating Profit
$2,240
$982
$1,990 $1,993
$5,878
$5,388 $5,518 $807
$5,069 $1,642 $779
$1,368
$3,907
$1,192
$3,496 $1,116
$3,162 $480 $467
$408
$385
2014 2015 2016 2017 2018 2019 2020E 2014 2015 2016 2017 2018 2019 2020E 2014 2015 2016 2017 2018 2019 2020E
Industry-wide volatility due to the trade war and COVID have disproportionately impacted ON’s profits
Source: Capital IQ, public company filings. Market data as of 10/7/20.
24ON Is Well-Positioned to Grow Going Forward
Approximately 65% of ON’s revenue is exposed to the Automotive, Industrial, and Cloud Power end markets, which we believe have long runway for
semiconductor content growth.
Automotive Content Growth Examples Industrial Content Growth Examples Cloud Power Content Growth Examples
Farm
System
A significant portion of ON’s business is exposed to attractive, growing end markets
Source: Public company presentation. 25ON Is Currently Operating Below Its Targets and Peer Group
We believe there is a meaningful opportunity to improve operations at ON.
’14A-19A Organic Revenue Growth 2020E Adj. Gross Margins 2020E Adj. Operating Income Margins
61.8%
33.7%
4.8%
43.0%
22.0%
2.9% 32.4%
2.1%
9.2%
ON ON Mgmt. Plan Peer Median 1 ON ON Mgmt. Plan Peer Median ON ON Mgmt. Plan Peer Median
We believe that ON can at least achieve its targets, which would still leave additional upside to close the gap to peers
Source: Capital IQ, public company filings. Market data as of 10/7/20.
Note: The peer group reflects the fabless / fab-lite peers and the fab-heavy peers on page 28.
1. Does not include Infineon Technologies given lack of public disclosure. 26Long-Term Shareholder Returns
ON is currently trading at the widest disparity to peers in years, despite having significant company-specific improvement opportunities.
Total Shareholder Returns
650%
550% 542%
450%
350%
296% 415% Under-
Performance
250%
150% 127%
50%
-50%
Oct-15 Oct-16 Oct-17 Oct-18 Oct-19 Oct-20
ON PHLX Semiconductor Sector Total Return Index 1 Proxy Peers 2
ON has lagged its semiconductor peers over an extended period of time
Source: Capital IQ, public company filings. Market data as of 10/7/20.
Note: Returns adjusted for dividends.
1. PHLX Semiconductor Sector Index is a capitalization-weighted index composed of 30 semiconductor companies. The index is primarily designed to track performance of the semiconductor industry.
2. Proxy Peer group from ON’s 2020 proxy statement includes AMD, ADI, AMAT, CREE, FSLR, LRCX, MRVL, MXIM, MCHP, QRVO, SWKS, TXN, and XLNX but does not include Cypress Semiconductor since it was acquired in 2020.
27ON Trades at a Deep Discount to Its Peer Group
We believe ON, which trades below its peers, has an opportunity to improve its multiple with consistent execution, as well as additional upside by
shifting to a fab-lite model.
Enterprise Value / CY2021E EBITDA
Fabless / Fab-Lite Direct Peers Fab-Heavy Direct Peers
Median: 16.7x 19.7x
18.1x
17.0x Median: 16.5x
16.5x
14.3x Median: 13.1x
13.1x
11.5x
10.0x
7.3x
ON PF ON 1 MXIM 2 ADI MCHP NXPI TXN IFX STM
FY 2019A
$5.5bn $2.2bn3 $6.0bn $5.3bn3 $8.9bn $14.4bn $9.5bn4 $9.5bn
Revenue
ON has an opportunity to narrow the valuation gap to its closest peers
Source: Capital IQ, public company filings, public company presentation. Market data as of 10/7/20.
Note: Fabless / fab-lite direct peers and fab-heavy direct peers were selected based on companies with similar end-market mix. The peer companies identified here reflect Starboard’s assessment of what firms can be reasonably considered ON’s peers in the semiconductor industry. However, this
analysis contains elements of subjectivity and the comparisons made herein may differ materially if other firms had been included. 1. Applies long-term operating margin of 22% to 2021E consensus revenue and add $483.4mm of D&A to calculate PF EBITDA. 2. ADI announced the acquisition of
MXIM on July 13, 2020. 3. Based on FY2020. 4. Based on EUR:USD ratio of 1.17855.
28We See Multiple Ways to Win at ON
We believe that by pulling any one or combination of these levers, ON would create meaningful value for its shareholders.
1 Improve gross margin by rationalizing manufacturing footprint
Reduce cyclicality and boost FCF conversion by exploring a
2
fab-lite model
3 Continued industry consolidation
291 Manufacturing Footprint Rationalization
A comparison of key metrics between ON and its peers with large manufacturing footprints show the margin improvement opportunity.
Utilization Rates1
Average: ~80%
~80-85% ~80-85%
~75-80%
~65%
ON NXPI STM TXN
Sq. Ft Per Manufacturing Facility1 Revenue per Employee2
(units in thousands) ($ in thousands)
1,000+ $307
$159
413
ON Peer Average ON Peer Average
We believe there is a significant opportunity to rationalize excess capacity
Source: Starboard estimates, public company filings, Wall Street estimates, company transcripts.
Note: The peer companies identified here reflect Starboard’s assessment of what firms can be reasonably considered ON’s peers in the semiconductor industry. However, this analysis contains elements of subjectivity and the comparisons made herein may differ materially if other firms had been
included. 1. Based on a peer group that we have identified as having a sizeable manufacturing footprint and publicly available data. Based on latest fiscal year. 2. Based on latest fiscal year by company. This peer group reflects the fab-heavy direct peers on page 28. Based on latest fiscal year. 301 Manufacturing Footprint Rationalization (Cont’d)
ON has begun taking steps to rationalize its footprint and move products from high-cost fabs to low-cost fabs.
1 Closure of Rochester Facility 2 Sale of Belgium Facility
3 Sale of Niigata, Japan Facility 4 Acquisition of East Fishkill, NY Facility
ON is beginning to take steps to right size its cost structure
Source: Public company transcripts. 312 Explore a Fab-Lite Model
Due to its heavy internal manufacturing footprint, ON suffers more than its fab-lite / fabless peers during downturns.
A common metric semiconductor companies use to forecast profitability in downturns is what their gross margin decline is for every “x% decline in revenue.” ON has
significantly lagged fab-lite peers on this metric.
Implied Change in Gross Margins From 10% Decline in Revenue1
(1.5%)
(2.3%)
(3.1%) (3.1%)
Average: (2.5%)
(6.2%)
ON ADI MCHP NXPI MXIM 2
A shift to a fab-lite model can allow ON to have more stable margins
Source: Public company filings, public company transcripts.
Note: The peer companies identified here reflect Starboard’s assessment of what firms can be reasonably considered ON’s peers in the semiconductor industry. However, this analysis contains elements of subjectivity and the comparisons made herein may differ materially if other firms had been
included. 1. This peer group reflects the fabless / fab-lite direct peers on page 28. Calculated as the difference in gross margins divided by change in revenue between calendar year Q2’20 vs calendar year Q2’19. 2. Based on commentary from CFO of Maxim on Q4’19 earnings call. 322 Explore a Fab-Lite Model (Cont’d)
With a fab-lite model, we believe ON can meaningfully improve its cash flow by cutting down on labor and capital expenditures.
Capital Expenditures % of Revenue1 Revenue / Employee1
($ in thousands) $365
Average: $321
9.7% $325
$302
$293
Average: 4.5%
5.9%
4.6% $159
4.3%
3.1%
ON NXPI ADI MCHP 2 MXIM ON ADI MXIM NXPI MCHP
We believe that ON will be able to boost its free cash flow generation by shifting to a fab-lite business model
Source: Public company filings.
Note: The peer companies identified here reflect Starboard’s assessment of what firms can be reasonably considered ON’s peers in the semiconductor industry. However, this analysis contains elements of subjectivity and the comparisons made herein may differ materially if other firms had been
included.
1. This peer group reflects the fabless / fab-lite direct peers on page 28. Based on latest fiscal year by company. 2. Uses FY2019 figures.
332 Industry Example: Maxim
Maxim did an excellent job of shifting to a fab-lite model by moving its manufacturing to foundries and significantly improving its cost structure.
Gross Margins (FY 2008-2020) Capital Expenditure % of Revenue (FY 2008-2020)
66.8%
10.5%
61.9%
2.5%
2008 2020E
Gross margins increased meaningfully even though 2020E
revenue is only ~7% higher than 2008 levels. 2008 2020E
“So I think if you look at gross margin and part of our transformation was -- we really went from a company that when I joined almost 12 years ago, we were about 85%, 90% internal
fab-sourced, and today, we are about 25%. So we really shifted to a much more variable model. And kind of one of the ways that we've tried to capture this is, 10 years ago, when the
recession, and we were this kind of 85% internal. For a 10% drop in revenue, we probably would have lost about 5 points of gross margin. Today with the, kind of, the outsourced
model, for that same 10% drop in revenue, we lose about 1 to 2 points of gross margin from utilization.”
- Bruce Kiddoo, Chief Financial Officer (July 2019)
Through strong strategic vision and execution, Maxim was able to successfully shift to a fab-lite model
Source: Capital IQ, public company filings. Market data as of 10/7/2020.
Note: The factors that impact a company’s performance can vary significantly. The conditions faced by ON may not be specifically comparable to those faced by Maxim and therefore the performance of ON could materially differ from these case studies, even if ON moves to a fab lite model. In
addition, other factors besides the move to a fab lite model could have influenced the performance of Maxim. 342 Valuation Multiple Discount
We believe ON, which trades below its peers, has an opportunity to improve its multiple with consistent execution, as well as additional upside by
shifting to a fab-lite model.
Enterprise Value / CY2021E EBITDA
Fabless / Fab-Lite Direct Peers Fab-Heavy Direct Peers
Median: 16.7x 19.7x
18.1x
17.0x Median: 16.5x
16.5x
14.3x Median: 13.1x
13.1x
11.5x
10.0x
7.3x
ON PF ON 1 MXIM 2 ADI MCHP NXPI TXN IFX STM
FY 2019A
$5.5bn $2.2bn3 $6.0bn $5.3bn3 $8.9bn $14.4bn $9.5bn4 $9.5bn
Revenue
ON has an opportunity to narrow the valuation gap to its closest peers
Source: Capital IQ, public company filings, public company presentation. Market data as of 10/7/20.
Note: Fabless / fab-lite direct peers and fab-heavy direct peers were selected based on companies with similar end-market mix. The peer companies identified here reflect Starboard’s assessment of what firms can be reasonably considered ON’s peers in the semiconductor industry. However, this
analysis contains elements of subjectivity and the comparisons made herein may differ materially if other firms had been included. 1. Applies long-term operating margin of 22% to 2021E consensus revenue and add $483.4mm of D&A to calculate PF EBITDA. 2. ADI announced the acquisition of
MXIM on July 13, 2020. 3. Based on FY2020. 4. Based on EUR:USD ratio of 1.17855.
352 Compelling FCF Potential
Pro forma for ON’s long-term plan and a shift to a fab-lite model, ON is trading at a compelling FCF yield of ~13%, more than double its fabless /
fab-lite direct peers.
CY2021E FCF Conversion from EBITDA1 CY2021E FCF Yield2
13.2%
Average: 74.9%
86.2%
79.6%
76.4%
57.5%
Average: 5.1%
48.3%
6.2% 6.1%
5.2%
4.7% 4.6%
ON MXIM ADI MCHP NXPI ON PF ON MCHP ADI NXPI MXIM
We believe ON has an opportunity to improve its free cash conversion profile
Source: Capital IQ, Starboard estimates, public company filings. Market data as of 10/7/20.
Note: The peer companies identified here reflect Starboard’s assessment of what firms can be reasonably considered ON’s peers in the semiconductor industry. However, this analysis contains elements of subjectivity and the comparisons made herein may differ materially if other firms had been
included. 1. Calculating free cash flow conversion as (CFFO – Capex) / Adj. EBITDA. This peer group reflects the fabless / fab-lite direct peers on page 28. 2. Calculating free cash flow yield as (CFFO – Capex) / Market Capitalization. 363 Continued Industry Consolidation
We believe semi industry consolidation will continue, as it has generally been successful, and that ON is uniquely positioned as a scaled asset
trading at a discount.
There has been significant consolidation in the semiconductor industry over the last several years, and many of these acquisitions were completed at attractive valuations for
the target.
EV / NTM EBITDA Transaction Multiples for Semiconductor M&A in Last 5 Years1
35.7x
28.9x
28.0x
22.1x
18.3x 18.1x Median: 17.2x
16.3x 15.9x
15.2x 14.4x
10.6x 11.1x
9.9x
The semi industry has seen a number of recent deals at highly attractive valuations, especially for analog and power companies
Source: Capital IQ. Market data as of 10/7/20.
Note: The precedent transactions identified here reflect Starboard’s assessment of what firms can be reasonably considered precedent transactions in the semiconductor industry. However, this analysis contains elements of subjectivity and the comparisons made herein may differ materially if other
transactions had been included.
1. Represents semiconductor transactions over $1 billion.
37Leadership Change
On September 4, 2020, ON announced that Keith Jackson, the Company’s President and Chief Executive Officer, intends to retire in May 2021.
Keith Jackson has been CEO of ON for 19 years, and transformed the company into an industry
leader through organic and inorganic investments.
The Board has an important decision to make in selecting a CEO to lead the Company in its next chapter
Source: Public company filings. 38Leadership Change Can Be a Positive Catalyst
We believe ON has the opportunity to position itself for the long-term by selecting the right CEO.
Marvell Technology Integrated Device Technology
On June 20, 2016, Marvell announced the appointment of Matthew On December 17, 2013, IDTI announced the appointment of Greg
Murphy as CEO and President. Waters as CEO and President.
Net Revenue Adj. Operating Margin Revenue Adj. Operating Margin
$843
$3,940
32.8%
$3,404 $605 27.6%
$484
19.6%
$2,649
14.8%
9.9%
7.9%
FY2014 FY2016 FY2023E FY2014 FY2016 FY2023E FY2011 FY2013 FY2018 FY2011 FY2013 FY2018
ON is at an important point in its lifecycle – a new CEO will have the opportunity to take the Company to the next level
Source: Capital IQ, public company filings. Market data as of 10/7/20. 39Compelling Investment Opportunity
Attractive End Markets
Long Product Lifecycles
Significant Margin Improvement Opportunity
Industry Consolidation & Opportunities
Compelling Valuation
We believe ON represents a compelling investment opportunity
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