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Eastman Chemical snaps up Solutia

by Lou Whiteman | Published January 27, 2012 at 11:00 AM

Eastman Chemical Co. on Friday, Jan. 27, agreed to acquire Solutia Inc. in a $4.7 billion cash, stock and debt deal designed to expand the buyer's reach in the Asia Pacific region.

Terms of the deal call for Kingsport, Tenn.-based Eastman Chemical, which was spun out of now-bankrupt Eastman Kodak in 1994, to pay $22 in cash and 0.12 of its shares for each share of Solutia. The deal values Solutia at $27.65 per share, a premium of 42% over its $19.51 Thursday close. Solutia's equity is valued at about $3.38 billion.

From its St. Louis headquarters, Solutia makes specialty chemicals used by the automotive and construction industries, among others. The company employs 3,400 from 50 worldwide locations, generating Ebitda of $501 million on sales of $2.06 billion in the twelve months ending Sept. 30, 2011.

Eastman chairman and CEO Jim Rogers in a statement called the deal "a significant step in our growth strategy," saying the deal would accelerate growth efforts along the Pacific Rim. The company last month broke ground on a facility in Heifei, China, part of a plan to expand its sales in the region.

"The addition of Solutia will broaden our geographic reach into emerging geographies, particularly Asia Pacific, establish a powerful combined platform with extensive organic growth opportunities, and expand our portfolio of sustainable products, all of which are consistent with our growth strategy," Rogers said.

Solutia was spun out of Monsanto Co. in 1997, but fell into Chapter 11 in December 2003. The company emerged frome bankruptcy protection in February 2008 and has since been in a growth mode, acquiring Dietenheim, Germany-based solar cell components maker Etimex Solar GmbH for €240 million ($327 million) in 2010 and adding glass and film products maker Southwall Technologies Inc. of Palo Alto, Calif., for $113 million in cash last October.

Jeffery N. Quinn, chairman and CEO of Solutia, said its sale to Eastman "provides Solutia's shareholders with immediate value and an attractive premium, as well as the opportunity to benefit from the future prospects of a leading global chemicals producer with the financial strength, a diversified mix of premium products, and the geographic footprint to capitalize on long-term growth opportunities."

Eastman expects the deal to contribute to earnings immediately, excluding acquisition-related costs and charges, noting that it has identified annual cost synergies of about $100 million that should be in place by year-end 2013. The company also expects to realize "significant" tax benefits from Solutia's historical net operating losses and other tax attributes that could contribute up to $ 1billion to free cash flow through 2013.

John Anos, Jim Stynes, Jim Ratigan, John Ferguson and Adam Abramson of Deutsche Bank Securities Inc. joined with a Moelis & Company LLC team including Ken Moelis, Dave Faris, John Collins and Azad Badakhsh to provide financial advice to Solutia. Perella Weinberg Partners LP acted as financial adviser to the company's board. Valence Group LLC conducted an independent evaluation of Solutia's long-range plans for the company's board, and a Kirkland & Ellis LLP team led by David Fox and William Sorabella provided legal advice.

Citigroup Inc.'s Paul Smith and Nathan Eldridge and Barclays Capital provided financial advice to Eastman and Jones Day's William Rowland, Lizanne Thomas, William Zawrotny and Mark Hanson served as legal counsel.

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Tags: Eastman Chemical Co. | M&A | Solutia Inc.

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Eastman Chemical snaps up Solutia

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