Kraton Drops on Delayed Profit Gain From LCY Merger

Kraton Performance Polymers Inc. (KRA), which plans to merge with a unit of LCY Chemical Corp., (1704) fell the most in more than two years after saying the combination will add to earnings later than originally forecast.

Kraton tumbled 14 percent to $21.53 at the close in New York, the biggest one-day decline for the Houston-based company since August 2011.

An oversupply of styrenic block co-polymers in China and lower-than-expected demand from pavement and shoemakers dragged down first-quarter earnings at the SBC unit of Taiwan-based LCY, Kraton Chief Executive Officer Kevin M. Fogarty said today on a conference call. The imbalance may not fully end for two years, and the merger won’t boost earnings per share in the first year as originally forecast, he said.

“When we announced this combination, our expectation was that in 2014 sales volume would improve and that margins would likewise recover to historical levels,” Fogarty said on the call. “Given the assumed delay of up to two years to achieve our original forecast, we now believe the transaction will be accretive to EPS in 2016.”

The deal will dilute earnings by 19 cents per share in 2015 and will add 29 cents the following year, Fogarty said. Kraton in January said the transaction would boost per-share earnings by 75 cents to 80 cents in the first year.

The merger should close in the fourth quarter, Kraton said in a regulatory filing today.

The agreement doesn’t allow for an adjustment to the purchase price, Chief Financial Officer Steve Tremblay said on the call. The board isn’t interested in paying a $25 million fee to terminate the deal, Fogarty said. The fee if shareholders veto the deal is capped at $10 million.

To contact the reporter on this story: Jack Kaskey in Houston at jkaskey@bloomberg.net

To contact the editors responsible for this story: Simon Casey at scasey4@bloomberg.net Carlos Caminada, Robin Saponar

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