Eastman, Solutia deal could signal more chemical M&A - analysts

27 January 2012 17:11  [Source: ICIS news]

NEW YORK (ICIS)--Eastman Chemical’s acquisition of Solutia could signal more major chemical mergers and acquisitions (M&A) to come, Wall Street analysts said on Friday.

The US-based chemical companies announced the $4.7bn (€3.6bn) deal, which includes the assumption of Solutia’s debt, earlier on Friday and projected about $100m in annual cost synergies.

The announcement is the second major proposed deal in the chemical sector so far this year – the first being US-based Westlake Chemical’s hostile bid to acquire US-based vinyls firm Georgia Gulf for $1.0bn.

“What is clear from these announcements is that players within the sector consider the sector undervalued with improving earnings prospects. Additionally buyers are not biased to specialties versus commodities or vice versa,” said Hassan Ahmed, analyst at investment research firm Alembic Global Advisors.

“Valuations are depressed and cheap US natural gas is making both sub-sectors of the US industry - specialty and commodity - attractive and making a whole host of US chemical names interesting M&A targets,” he added.

Ahmed did not name any potential targets.

Laurence Alexander, analyst at US-based investment bank Jefferies & Co, noted that “perennial take-out candidates” include US-based chemical companies Albemarle, Celanese, Cytec Industries, Huntsman, OMNOVA Solutions and WR Grace.

“2011 was an unusual year in that chemical companies that conducted large M&A did not remain in the penalty box for long,” Alexander said.

“Accordingly, we expect consolidation to continue in the sector, with US and European firms looking for scarcity value and market-leading positions, Asian firms looking for technology and Middle Eastern firms looking for vertical integration,” he added.

Eastman’s purchase price for Solutia represents, assuming a total value of $27.65/share for Solutia, about 7.8 times estimated 2012 earnings before interest, tax, depreciation and amortisation (EBITDA), according to Alexander.

Solutia produces advanced interlayers for automotive windows, solar encapsulants, performance films for building windows, rubber chemicals and hydraulic fluids.

Eastman makes chemicals for the coatings, adhesives, specialty polymers and inks business, and produces fibres, specialty plastics and intermediates.

($1 = €0.76)

Paul Hodges studies key influencers shaping the chemical industry in Chemicals and the Economy

By: Joseph Chang
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