Solstice Advanced Materials: An Undervalued Portfolio of High-Quality Specialty Materials

Solstice Advanced Materials is a specialty materials company focused on fluorine chemistry, operating two segments: Refrigerants & Application Solutions (RAS) and Electronics & Specialty Materials (ESM), comprising seven independent businesses: Refrigerants, Nuclear, Electronic Materials, Safety & Defense Solutions, Medical Packaging, Building Solutions & Intermediates, and Research & Performance Chemicals. Starboard believes these businesses are mostly market leaders and benefit from structural growth trends. However, after the company announced the acquisition of Element Solutions on July 6, 2026, the stock price fell nearly 25% in three days. Although the transaction was terminated on August 27, the stock price has not recovered. As of October 16, 2026, Solstice's total enterprise value was $11.0 billion, corresponding to just 9.3x 2027E EBITDA, roughly in line with the median of 8.5x for slow-growth, cyclical commodity chemical peers such as RPM, DD, and ATR. Starboard believes this valuation fails to reflect the true value of the company's high-growth businesses.

Source p3。RAS is Refrigerants & Applied Solutions; ESM is Electronic & Specialty Materials.

Refrigerants are Solstice's largest revenue and profit business, serving stationary air conditioning, automotive air conditioning, and data center HVAC end markets. Global regulations are driving a transition from traditional HFC refrigerants to more environmentally friendly next-generation HFO refrigerants. According to Mizuho data, HFO consumption in the U.S. and Europe is expected to grow from 108 kT in 2025 to 202 kT in 2035, while HFC consumption declines from 198 kT to 168 kT, with the combined market growing from 306 kT to 370 kT. Solstice is already a leader in HFCs, and in HFOs, it is one of only two participants with key patent protection, forming an attractive duopoly market structure. Starboard believes this transition will drive strong revenue growth for Solstice's refrigerants business.

Source p11。US and European volumes. 306/370 are totals, not HFO/HFC components. HFO rises while HFC declines.

Solstice leverages its expertise in fluorine chemistry to provide conversion services for turning uranium into UF₆, a small but critical step in the nuclear fuel cycle. The company owns the only UF₆ conversion facility in the U.S. and one of only three facilities in the Western world. Nuclear energy is experiencing a renaissance driven by electricity demand growth from AI infrastructure, with global nuclear power capacity expected to increase significantly.

The UF₆ conversion market currently faces a severe supply-demand imbalance. Current market contract prices are approximately $56/kgU, while Starboard estimates Solstice's average contract price is only about $30/kgU, a discount of roughly 45% (~$25/kgU). As these multi-year contracts expire and reprice to market levels, combined with modest debottlenecking capacity increases, Starboard expects nuclear revenue to grow from $356 million in 2025 to approximately $725 million in 2030 (~15% CAGR), and nuclear EBITDA to grow from $125 million to approximately $370 million (~24% CAGR). These projections are before deducting General Atomics' share of the ConverDyn joint venture.

Source p19 p20 p23 p24。Revenue and EBITDA forecasts are before General Atomics’ share of ConverDyn JV economics. Repricing and modest debottlenecking underpin the forecast; additional major expansion is separate upside.

Currently, Western UF₆ conversion capacity (Solstice 9.5 kT, Orano 11.2 kT, Cameco 11.2 kT) faces a gap of approximately 35% relative to total demand (48.9 kT), which is filled by secondary supply (recycled fuel, underfeeding at enrichment plants, inventory drawdown), Chinese imports (1.5 kT), and Russian imports (5.7 kT). However, secondary supply is unsustainable, and the U.S. ban on Russian imports will take full effect in 2028, further widening the gap.

Among the three Western facilities, Solstice has the largest permitted expansion capacity. Its 2026 production is 9.5 kT, while total permitted capacity is 15.0 kT, implying an additional 5.5 kT of permitted space. In comparison, Orano and Cameco have additional permitted space of 3.8 kT and 1.3 kT, respectively. Starboard believes Solstice is best positioned to fill this structural shortfall, and expansion would be a high-ROIC use of capital. Company management also stated in February 2026 that they are actively evaluating ways to further increase UF₆ production.

Source p21。Western production is about 35% below total demand; secondary supply, China and Russia fill the gap. Secondary supply includes recycled fuel, enricher underfeeding and inventories.

Beyond nuclear and refrigerants, Solstice has a portfolio of high-quality businesses. The electronic materials business directly benefits from AI infrastructure buildout and semiconductor demand growth, with a revenue growth outlook in the double digits. The safety & defense solutions business provides law enforcement and military body and vehicle armor, also with a double-digit growth outlook. The medical packaging business provides pharmaceutical packaging materials and medical propellants, with a GDP+ growth outlook. All these businesses have technological differentiation and structural growth tailwinds.

Starboard selected Cameco (CCJ), BWXT, and Centrus (LEU) as nuclear peers. Starboard believes that based on Solstice's nuclear business's ~15% revenue CAGR from 2025-30E and its unique competitive position, it should command a 20.0x 2029E EBITDA multiple.

The calculation is as follows: 2029E total nuclear business EBITDA is $320 million, with Solstice's attributable share at 61% (via the ConverDyn joint venture), resulting in Solstice's attributable nuclear EBITDA of approximately $196 million. Multiplying by the 20.0x multiple yields Solstice's attributable nuclear value of approximately $3.9 billion.

Source p36 p37。320M times 61% is approximately 196M; times 20 is approximately 3.9B. The valuation already reflects Solstice’s share, using rounded source inputs.

Starboard valued these three businesses separately:

• Electronic Materials: Selected Entegris, Materion, Qnity, and Element Solutions as peers, applying a 19.0x 2027E EBITDA multiple based on growth prospects, valuing $130 million in EBITDA at $2.5 billion.
• Safety & Defense Solutions: Selected defense sub-component peers and the Dyneema transaction as references, applying a 12.5x 2027E EBITDA multiple, valuing $45 million in EBITDA at $0.6 billion.
• Medical Packaging: Selected Aptar and Amcor as peers, applying an 8.5x 2027E EBITDA multiple, valuing $75 million in EBITDA at $0.6 billion.

The three businesses together are worth approximately $3.7 billion. Starboard believes these businesses could be spun off to unlock their true value.

Source p41。Starboard estimates and separation framework, not realized proceeds. Nuclear uses a different forecast year, 2029E.

After deducting the values of nuclear ($3.9 billion), electronic materials ($2.5 billion), safety & defense ($0.6 billion), and medical packaging ($0.6 billion) from Solstice's total enterprise value, the implied multiple for the remaining business (primarily refrigerants and other chemicals) is 4.3x 2027E EBITDA, far below the chemical peer median of 8.5x.

Additionally, Starboard sees significant cost reduction opportunities at Solstice. The company's unallocated corporate overhead as a percentage of revenue is 5.3% (CY2026E), compared to a peer median of just 2.3%. Even closing this gap alone would yield at least $100 million in cost savings, approximately 20% of SG&A. Including this savings, the implied multiple for the remaining business drops further to 3.8x.

Source p43。Overhead excludes D&A. Most peers use CY2026E; the ASH/EMN fiscal-year exceptions are shown above.

Source p34 p42 p44。Remaining businesses are mainly refrigerants and other chemicals. The 4.3x scenario excludes savings; 3.8x includes Starboard’s at least $100M savings scenario.

Starboard concludes: Solstice has a portfolio of high-quality, fast-growing specialty chemicals and materials businesses; the current valuation is too cheap and fails to reflect fair value; the Element Solutions acquisition remains a cloud over the stock; investors need confidence that management is committed to core businesses and unlocking shareholder value. Starboard is pleased to be a shareholder and looks forward to engaging with management.