Trinseo sees Arkema PMMA deal as first step in transformation

Author: Al Greenwood

2020/12/14

HOUSTON (ICIS)--Trinseo sees its acquisition of Arkema's polymethyl methacrylate (PMMA) business as a first step and a critical catalyst in the transformation of its portfolio, the US-based styrenics producer said on Monday.

Earlier, Trinseo announced that it has agreed to buy the business for €1.14bn. The deal should close in mid-2021.

“This acquisition will be a catalyst for portfolio transformation toward becoming a higher margin, less cyclical solutions provider,” said Frank Bozich, Trinseo CEO.

Arkema's PMMA business has consistently delivered good margins and cash flow, Trinseo said. It also serves many of Trinseo's end markets.

As such, the acquisition will complement Trinseo's existing business. Its performance plastics business makes acrylonitrile butadiene styrene (ABS), styrene acrylonitrile (SAN) and polycarbonate (PC) as well as thermoplastic elastomers (TPE).

Trinseo also makes compounds of PC, ABS and polypropylene (PP).

Its other businesses make styrene butadiene latex, styrene butadiene rubber (SBR), polystyrene (PS) and styrene.

"We believe this is an excellent first step in our portfolio transformation that is expected to ultimately include the separation of some of our commodity businesses," Bozich said.

As such, the company is exploring the possible divestment of its synthetic rubber business.

The acquisition implies a purchase price of 6.2x enterprise value when compared with 2020's estimated adjusted earnings before interest, tax, depreciation and amortisation (EBITDA). The adjustments take into account the effects of the coronavirus as well as annual run-rate cost synergies.

Trinseo estimates that those run-rate cost synergies will reach $50m by 2023. The company could achieve another $25m through work on information-technology (IT) systems.

Trinseo expects the acquisitions will become accretive to adjusted earnings/share in 2022.

Trinseo is funding the acquisition with up to $250m of existing cash. The rest will come from new debt financing.

The company's net leverage ratio should reach in the mid-3x when the deal closes, Trinseo said. It plans to lower the ratio to the mid-2x in 2023.

To focus on deleveraging, Trinseo is cutting its quarterly dividend to 8 cents/share from 40 cents/share. It is also suspending its share repurchase programme.

The acquisition will be the second one for Trinseo. In July 2017, it closed on the acquisition of Italy-based API (Applicazione Plastiche Industriali).

Additional reporting by Pearl Bantillo

Thumbnail image shows PMMA. Source: Shutterstock