27 January 2012 15:20 [Source: ICIS news]
HOUSTON (ICIS)--US-headquartered Eastman Chemical expects to take on some $3.5bn (€2.7bn) in new debt to help finance its bid to acquire specialty chemicals firm Solutia, Eastman executives said on Friday.
However, despite the increase in debt, Eastman remains committed to retaining its investment grade credit rating and to maintaining its current annual dividend payout of $1.04/share, CEO Jim Rogers said in a conference call.
Eastman’s credit profile should be “pretty strong” following completion of the acquisition, with “paydown of debt a top priority”, Rogers said.
Rogers would be happy with either a mid- or low-triple B credit rating, which are both investment grade, he added.
But despite the near-term focus on debt repayment and the integration of Solutia, Eastman would continue to invest in organic growth opportunities, and “there will be a time when we get more active again inorganically”, Rogers said.
Eastman’s new debt will be made up of a low-interest five-year term loan of about $1bn, as well as bonds.
Eastman already has bridge financing commitments from two financial institutions, Citibank and Barclays.
The bid, expected to close by mid-2012, has “no financing contingency”. It includes a termination fee of $102m.
Eastman is offering Solutia shareholders $22.0 in cash and 0.12 Eastman shares for each share of Solutia common stock they hold – reflecting an 80% cash/20% stock consideration. Eastman expects to issue about 15m shares to Solutia shareholders.
The $27.65/share bid value represents a 42% premium on Thursday’s Solutia closing price. Solutia’s shares were up 41.8% to 27.62/share at 09:35 in New York on Friday morning.
Eastman’s bid values Solutia at 9.0 times of 2011 earnings before interest, tax, depreciation and amortisation (EBITDA).
On the closing of the deal, Eastman’s pro-forma debt-to-EBITDA ratio will be about 2.8:1.
Eastman is a global chemical company with a broad portfolio of manufacturing technologies and chemical, plastic and fibre products. Solutia is a manufacturer of performance materials and specialty chemicals.
Additional reporting by Nigel Davis
($1 = €0.76)
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