Braskem Buys Dow’s Polypropylene Business for $323 Million

Braskem SA, Latin America’s largest petrochemicals maker, agreed to buy Dow Chemical Co. (DOW)’s polypropylene assets for $323 million to gain U.S. and German plants that produce plastic used in bottle caps and carpets.

The Braskem America subsidiary gains four factories with combined production capacity of 1.05 million tons a year, Sao Paulo-based Braskem said today in a statement. The price is $340 million including cash and “contingency assumptions” such as working capital, Midland, Michigan-based Dow said in a separate statement.

The plants in Texas increase Braskem’s production capacity in North America by 50 percent and make it the largest U.S. producer of polypropylene, Braskem said. The sale allows Dow to buy less propylene, prices of which have been volatile, and frees internal production of the oil-derivative for higher-value products such as acrylics, Dow Chief Executive Officer Andrew Liveris said today on a conference call.

“This is yet another step along the lines of putting our precious inputs, propylene in this case, into value-add outputs,” Liveris said on the call with analysts.

Polypropylene is made from propylene and used to make such products as bottle caps, carpets, toys, thermal underwear and auto parts.

U.S., German Plants

Braskem gains plants in Texas at Seadrift and Freeport with combined capacity of 505,000 tons, and in Germany at Schkopau and Wesseling with 545,000 tons of capacity. Braskem also acquires inventories, certain technologies and customer lists, Dow said. Braskem said it will sign contracts with Dow and third parties for raw-material supplies and services.

The agreement values the business at 6.7 times annual earnings before interest, taxes, depreciation and amortization, Dow said, equal to Ebitda of about $50 million a year.

Proceeds from the asset sale will be used to repay Dow’s debt, reward shareholders and fund expansion, Liveris said.

Dow said it expects to report a gain on the transaction, which should close by the end of the third quarter, pending regulatory approval.

About 200 employees will transfer to Braskem. Combining the business with other units will reduce costs by about $140 million, Braskem said.

Dow’s polypropylene licensing and catalyst business, based in St. Charles, Louisiana, is excluded from the deal.

HSBC Holdings Plc and law firm Skadden, Arps, Slate, Meagher & Flom LLP advised Braskem.

In February, Braskem agreed to buy polypropylene factories from Philadelphia-based Sunoco Inc. in a $350 million transaction that closed in April.

Propylene Self-Sufficiency

Selling the polypropylene unit while adding propylene capacity will make Dow self-sufficient in propylene, Liveris said on the call. Dow has plans to build two plants for making propylene from propane on the U.S. Gulf Coast.

Liveris has discussed divesting parts of the basic-plastics unit since an agreement to sell a stake in the business to Kuwait collapsed in 2008. He said last year that he plans to retain linear low-density polyethylene production, which serves higher-margin markets such as food packaging and wire and cable. Dow is the world’s biggest maker of polyethylene.

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