Eastman to buy US specialty chemicals firm Solutia in $4.7 billion deal
Eastman Chemical has agreed to acquire US-based specialty chemicals and performance materials firm Solutia, a global leader in performance materials and specialty chemicals, in a deal valued at about $4.7 billion (including debt).
Under the terms of the agreement, Solutia stockholders will receive $22.00 in cash and 0.12 shares of Eastman common stock for each share of Solutia common stock.
Based on Thursday’s closing prices, Solutia shareholders will receive cash and stock valued at $27.65 per Solutia common share, representing a premium of 42% and a total transaction value of approximately $4.7 billion, including the assumption of Solutia’s debt.
“The acquisition of Solutia is a significant step in our growth strategy and one that I am confident will strengthen Eastman as a top-tier specialty chemical company with strong, stable margins,” said Jim Rogers, CEO of Eastman.
“The addition of Solutia will broaden our geographic reach into emerging geographies, particularly Asia Pacific, establish a powerful combined platform with extensive organic growth opportunities, and expand our portfolio of sustainable products, all of which are consistent with our growth strategy,” he continued.
“This transaction is also expected to deliver immediate value to our stockholders in the form of accretion and strong cash generation, as well as create potential upside through the combination of two leading global chemical companies.”
Jeffry N. Quinn, CEO of Solutia, also made positive statements regarding the deal.
"This complementary transaction will accelerate the growth of our businesses around the world. The shared commitment to innovation, quality and technical service will allow us to better serve our customers and creates opportunity for our employees around the globe," said Quinn.
"This transaction provides Solutia’s shareholders with immediate value and an attractive premium, as well as the opportunity to benefit from the future prospects of a leading global chemicals producer with the financial strength, a diversified mix of premium products, and the geographic footprint to capitalize on long-term growth opportunities,” Quinn added.
“I commend the excellent management team and employees of Solutia,” said Rogers. “Over the past several years, Solutia has transformed itself into a financially strong, innovative performance materials and specialty chemicals company, with enviable market leading positions in virtually every market it serves.
“That, in addition to both companies’ success integrating prior acquisitions, gives me confidence we will achieve a smooth transition.”
Eastman and Solutia share several key fundamentals, such as complementary technologies and business capabilities, a polymer science backbone, similar operating philosophies and a high performance culture, the companies said.
In addition, the overlap of key end-markets could provide opportunities for growth.
This acquisition is also a significant step in Eastman’s strategy to extend its global presence in emerging markets, it said.
In particular, it should significantly accelerate Eastman’s growth efforts and offer excellent growth opportunities in Asia Pacific.
By leveraging infrastructure in the region, Eastman expects to have a compound annual growth rate in Asia Pacific approaching 10% for the next several years.
Eastman expects the transaction to be immediately accretive to earnings, excluding acquisition-related costs and charges.
After giving effect to the acquisition of Solutia, including expected cost synergies, Eastman expects 2012 EPS to be approximately $5 excluding acquisition-related costs and charges.
Eastman is also increasing its 2013 EPS expectation to greater than $6.
Eastman has identified annual cost synergies of approximately $100 million that are expected to be achieved by year-end 2013, it said.
Key areas of value creation include the reduction of corporate costs, raw material synergies, and improved manufacturing and supply chain processes.
Eastman says it expects to realize significant tax benefits from Solutia’s historical net operating losses and other tax attributes that are expected to contribute to free cash flow (defined as cash from operations minus capital expenditures and dividends) of approximately $1.0 billion through 2013.
Eastman said it also recognized the potential for meaningful revenue synergies by leveraging both companies’ technology and business capabilities and end-market overlaps, particularly in automotive and architectural.
The transaction, which was approved by the boards of directors of both companies, remains subject to approval by Solutia’s shareholders and receipt of required regulatory approvals as well as other customary closing conditions.
The deal is expected to close in mid-2012.
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