INSIGHT: Widening interest for good assets

11 November 2008 17:56  [Source: ICIS news]

By Nigel Davis

LONDON (ICIS news)--The chemicals merger and acquisition (M&A) landscape has changed dramatically in a few months but for companies and others with the cash there are some real bargains to be had.

Mitsubishi Rayon on Tuesday snapped up a tasty morsel with its $1.6bn (€1.2bn, £1bn) agreed offer for methyl methacrylate (MMA) producer Lucite.

Mitsubishi Rayon is buying a good company with exciting new monomer production technology. It fits many of the criteria the Japanese group set out for expanding its MMA business globally.

Lucite will make Mitsubishi Rayon the only company with access to all three main MMA production technologies.

The Lucite sale will bring to a close a long period of speculation about the UK headquartered group, which private equity group Charterhouse has been trying to divest for some time.

It was only in 2006 that Lucite was estimated to be worth $2.5bn.

The company will be sold now in a deal which values it at around 1.2 times sales. In 2007 Lucite generated revenues of £849m and earnings before interest, tax, depreciation and amortisation (EBITDA) of £114m.

Mitsubishi Rayon will take Lucite for a good price although the sale has been caught up in the onset of overcapacity in the MMA market and falling prices.

Lucite was earlier withdrawn from sale because bidders attributed no value to its proprietary Alpha technology, CEO Ian Lambert told ICIS this year. The technology has been under development for a decade.

The ethylene-based Alpha process offers a new low-cost route to MMA which, Lucite says, makes 40% savings over existing technologies.

Lucite said on Tuesday that it had started-up its first Alpha plant on Jurong Island in Singapore. It has plans for at least two more units.

Lucite claims that Alpha has the potential to “revolutionise” the cost base of the MMA industry and Mitsubishi Rayon recognises this.

The process uses readily available commodity chemicals ethylene, carbon monoxide and methanol as feedstocks instead of conventional materials such as hydrocyanic acid and isobutylene.

So an Alpha technology MMA plant can be sited anywhere in the world and there are not the size limitations that hamper the existing MMA process.

Lucite was formed in 1993 from the amalgamation of the acrylics businesses of ICI and DuPont and Charterhouse purchased the business in 1999.

Other shareholders in the business include INEOS (12%), management and employees (5%) and private equity fund Aberdeen Murray Johnstone (2%).

The current desire of companies and private equity funds for cash is likely to open up more opportunities for cash-rich industry players.

The nature of chemicals sector M&A, therefore, will change as the opportunity to do deals generally diminishes but specific deals look attractive.

The impact of the credit crisis and deepening economic gloom are apparent but this is still not a bad year for chemicals M&A. PricewaterhouseCoopers (PwC) data show that the number of announced deals in chemicals dropped sharply in 2008 through the third quarter as did the total deal value.

But PwC reckons that some chemical companies are continuing to aggressively pursue “transformational” deals to drive long-term strategic growth objectives.

The big deals in the third quarter involved Dow Chemical, the Kuwait Investment Authority and Berkshire Hathaway, an unusual combination of investors, perhaps.

The current credit crisis, revaluation of publicly held companies and the drive for most players for cash could continue to produce an intriguing landscape in which the financially strong pursue new, and indeed, transformational, opportunities.

Look out, perhaps for more M&A activity from the sector’s big, and still cash-healthy players. At the same time players controlled by wealthy states could begin to play a more active role in sector M&A.

The merger and acquisition opportunities are not fewer and farther between in a downturn, just more difficult to grasp - for some.

($1 = €0.78, £0.64)

Will Beacham contributed to this article
To discuss issues facing the chemical industry go to ICIS connect

By: Nigel Davis
+44 20 8652 3214

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