Eastman acquires Solutia for over US$4 billion

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According to the terms of the agreement, as compensation, Solutia stockholders will each receive $22 in cash and 0.12 shares of Eastman common stock for each share of Solutia common stock.

In a statement released, Solutia explains, "Based on yesterday’s closing prices, Solutia shareholders will receive cash and stock valued at $27.65 per Solutia common share, representing a premium of 42 percent and a total transaction value of approximately $4.7 billion, including the assumption of Solutia’s debt."

The cash sum is expected to be financed via cash on hand and debt. The debt financing has been provided by both Citi and Barclays Capital, which are also acting as financial advisors.

While both companies’ board of directors have approved the acquisition, it still needs the go ahead from Solutia’s shareholders. Overall, the transaction is scheduled for conclusion by mid-2012.

Jim Rogers, Eastman chairman and CEO says the acquisition will particularly help Eastman to strengthen its presence in the Asia Pacific markets. He adds that he looks forward to welcoming Solutia’s employees to the company.

Cost reduction

Eastman says it expects the takeover to be "immediately accretive to earnings, excluding acquisition-related costs and charges."

It adds that it foresees savings in operating costs of around $100 million, which are expected to be achieved by the end of 2013. "Key areas of value creation include the reduction of corporate costs, raw material synergies, and improved manufacturing and supply chain processes," it says.

Financial performance

In related news, Solutia has released its fourth quarter (Q4) and full year (FY) 2011 financial results. Q4 net sales represented $526 million (FY: $2.9 billion), up $37 million or eight percent from the same period in 2010, and up $7 million from Q3 2011. Meanwhile, adjusted Q4 2011 EBITDA totaled $121 million (FY: $518 million), up $5 million from Q4 2010.

Its Advanced Interlayers business segment, which supplies the photovoltaic industry, saw losses in Q4, however. Net sales totaled $225 million, which represented an increase of $3 million or one percent from the same period in 2010, but a small decrease of $2 million from Q3 2011. Adjusted EBITDA also performed poorly, having decreased by $4 million to $46 million in Q4 2011 compared to Q4 2010.

"This earnings decrease was primarily due to lower average selling prices and volumes in the Vistasolar EVA encapsulants business, partially offset by a favorable selling price/raw material cost spread on Saflex PVB interlayer," explains the company in a separate statement released.

For the FY 2011, the results were not so negative. Annual net sales reached $897 million, an increase of $69 million on Q4 2010. Adjusted EBITDA, meanwhile, increased by $4 million to $194 million for 2011. "This earnings increase was primarily due to higher sales volumes of Saflex PVB interlayer, lower manufacturing cost and lower annual incentive compensation expense, partially offset by lower average selling prices and volumes of Vistasolar EVA encapsulants and an unfavorable selling price/raw material cost spread on Saflex PVB interlayer,"continues the company.

Looking ahead to 2012, Solutia says it expects the energy solutions and electronics markets to grow, mainly due to activity in China. Overall, it hopes to achieve a revenue of between $2.1 billion and $2.2 billion.

It adds, "The company premises modest price increases in certain product lines targeted predominantly to recover higher raw material costs, and a weaker Euro. Operating margins for 2012 are expected to be consistent with or slightly higher than those realized in 2011 as we expect to operate at higher utilization rates to meet the stronger demand profile."