A Schulman will expand LyondellBasell's compounding beyond auto

Source: ICIS News

2018/02/15

HOUSTON (ICIS)--The acquisition of compounder A Schulman will give LyondellBasell access to a full range of markets beyond automobiles, the CEO of the Dutch company said on Thursday.

LyondellBasell already has a compounding business, and A Schulman will diversify it, said Bob Patel, CEO. He made his comments during an earnings conference call.

That existing LyondellBasell business has nearly 3bn lb (1.36m tonnes) of polypropylene (PP) compounding capacity, with nearly all of it serving the automotive industry, according to the company.

With A Schulman, LyondellBasell will have positions in packaging and consumer; electronics and appliances; building and construction; and agriculture as well as auto.

The table below lists the compounded annual growth rates (CAGR) of these end markets over 2018-2022. LyondellBasell attributed the statistics to Grand View Research and Markets.

A Schulman will also add engineered polymers to LyondellBasell's existing portfolio of polyethylene (PE) and polypropylene (PP).

LyondellBasell is acquiring the company for $2.25bn.

The price represents a multiple of 11.0x in terms of adjusted earnings before interest, tax, depreciation and amortisation (EBITDA) during the 12-month period that ended on 30 November, the company said. Once expected synergies are included, the multiple falls to 6.3X of adjusted EBITDA.

Those synergies should total $150m, achieved within two years, with logistics and procurement accounting for 35%; operational efficiency 15%; asset optimisation 35%; and sales, general and administrative (SG&A) expenses 15%, the company said.

The deal should close in the second half of the year.

For now, LyondellBasell will focus on integrating A Schulman into its business and building its compounding platform, Patel said. LyondellBasell could make some bolt-on acquisitions in compounding.

The A Schulman deal had followed reports that LyondellBasell was pursuing a much different acquisition.

In October, the Wall Street Journal reported that LyondellBasell made a takeover approach for Brazilian polyolefins producer Braskem.

During that same month, A Schulman CEO Joseph Gingo said the company was not for sale.

Regardless, LyondellBasell has been building up its compounding business.

In September, it started production at its 20,000 tonne/year PP compounding plant in Dalian, China.

In April 2016, it acquired the PP compounding assets of Zylog Plastalloys, its second purchase in the sector in India.

In 2015, it completed the acquisition of India-based PP compounds producer SJS Plastiblends (SJS).

LyondellBasell had discussed its compounding business extensively during its recent conference call.

Automobile producers can use PP compounds instead of heavier and costlier metals and engineered resins for their vehicles, Patel said during that call.

Such compounds are used in the interior, exterior and under the hood of an automobile.

Electronic vehicles could use increasing amounts of PP compounds, since these vehicles do not reach the high temperatures found in automobiles powered by internal-combustion engines.