Solutia investors will receive $22 in cash and 0.12 of an Eastman share for each of their shares, the companies said in a statement today. The cash and stock offer, valuing Solutia shares at $27.65 apiece, is 42 percent higher than Solutia’s closing price yesterday.
The transaction follows a hunt for assets that have less- cyclical demand and increased exposure to emerging markets such as the pending acquisition of Taminco Group NV, which is being bought by Apollo Global Management LLC. With the addition of Solutia’s plastics and materials used in cars, solar panels and glass, Kingsport, Tennessee-based Eastman is targeting a compound annual growth rate in the Asia-Pacific region approaching 10 percent in the coming years.
“The acquisition of Solutia is a significant step in our growth strategy,” Chief Executive Officer Jim Rogers said in the statement.
Solutia rose 42 percent to $27.76 at 8:04 a.m. before the start of regular trading in New York.
Eastman is paying 8.62 times earnings before interest, taxes, depreciation and amortization to acquire St. Louis-based Solutia, compared with an average 7.73 for specialty chemical transactions over the past decade, according to data compiled by Bloomberg. Solutia’s debt stood at $1.22 billion at the end of last year.
Rogers is now responsible for merging the businesses to capture an expected $100 million in cost savings by the end of 2013.
Spun off from Monsanto Co. (MON), Solutia emerged from Chapter 11 bankruptcy protection in 2008, with Chief Executive Officer Jeffry Quinn undertaking a broad-reaching overhaul of the business to boost margins. The company reported a 7.5 percent increase in annual sales to $2.1 billion in 2011. Adjusted earnings per share rose 27 percent to $2.
The Solutia deal should be immediately accretive to earnings, excluding costs, lifting earnings per share to about $5 for 2012, and to more than $6 the following year. It will bring tax benefits to free cash flow equal to about $1 billion through 2013, the company said.
Eastman plans to fund the cash portion of the deal with cash on hand and debt. Debt financing was committed by Citigroup Inc. and Barclays Plc (BARC), which served as advisers to Eastman. Jones Day provided legal counsel.
Deutsche Bank AG (DBK) and Moelis & Co. provided financial advice to Solutia, while Kirkland & Ellis LLP acted as legal counsel. Perella Weinberg Partners LP advised Solutia’s board, which also received an independent evaluation of the company’s long-term plan from Valence Group LLC.
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