Eastman to buy Solutia Inc. for $4.7 billion
KINGSPORT — Eastman Chemical Co. announced Friday it plans to buy specialty chemical maker Solutia Inc. in a deal valued at $4.7 billion — the largest acquisition in Eastman’s history.
“This is the largest thing by far that Eastman Chemical has ever done,” Eastman Chairman and CEO Jim Rogers told local media Friday afternoon. “I can tell you we’re excited across the board.”
Based in St. Louis, Solutia is a global company with 3,400 employees at more than 50 locations across five continents. Of its 24 manufacturing locations, 11 are located outside of North America, and more than 75 percent of the company’s $2.1 billion in annual sales comes from outside the United States.
The deal will allow Eastman to extend its reach around the globe and into emerging markets. It will also boost Eastman’s earnings expectations, save costs of up to $100 million by the end of 2013, and provide Eastman with significant tax benefits.
The acquisition also means good news for Eastman’s headquarters here in Kingsport, Rogers said.
“When Eastman grows as a global company, obviously we’re going to have operations around the world. But don’t forget — this is our headquarters. We run a centralized operation, and to the extent we get larger and have more assets to run, no matter where they are in the world, we need more and more capabilities here in Kingsport. So over time, you would expect our head count to increase, and it will increase in the professional ranks, and that’s good for Kingsport,” Rogers said.
Solutia’s materials are used primarily in the construction, transportation, energy and manufacturing markets, and include architectural and automotive glass and aftermarket performance films for automotive and architectural applications.
As part of the transaction, Solutia stockholders will receive $22 in cash plus 0.12 share of Eastman common stock for each share of Solutia stock. Based on Thursday’s closing stock prices, Solutia shareholders will receive cash and stock valued at $27.65 for each share they own, representing a premium of 42 percent.
With 124 million Solutia shares, Eastman will pay $3.4 billion in equity value and assume $1.3 billion in Solutia debt for a total deal of $4.7 billion.
Eastman Chief Financial Officer Curt Espeland said the company will pay for the acquisition with debt and cash on hand and expects to maintain its investment grade credit rating and its current annual dividend rate of $1.04 per share.
The market reacted favorably to the deal. Eastman’s stock closed Friday at $50.41, up $3.29 for the day.
Soon after the acquisition was announced Friday, at least one law firm representing Solutia shareholders was investigating whether Solutia’s board had breached its fiduciary duties by failing to adequately “shop” the company before entering into the purchase agreement with Eastman. The law firm of Levi & Korsinsky LLP said in a statement that at least one analyst had set a price target for Solutia stock at $31 per share — far more than what Eastman plans to pay for the company.
On Friday, Rogers said litigation after this type of acquisition announcement is “just the nature of doing business today.”
“There’s always going to be some that say we paid too much and some that say we didn’t pay enough. I think both sides represented their shareholders very well. I think we all followed the processes we should to make sure we did our fiduciary responsibility to our shareholders. I’m very confident we’re going to close this transaction,” Rogers said.
The deal is subject to shareholder and regulatory approvals and is expected to be finalized by mid-year.
Rogers said Eastman plans to spend the next 12 to 18 months integrating Solutia’s operations and employees under Eastman’s umbrella. Once that process is complete, Eastman may be looking at other growth opportunities, Rogers said.
“Frankly we’re going to be ready for more before you know it,” Rogers said. “As soon as we feel we’ve got this one under our belt, we’ll be ready to go again and see if there is another opportunity for us to grow.”
Rogers said the acquisition has been in the works for several months. He credited Eastman employees for making the deal possible.
“I have to give credit to the 10,000 Eastman men and women — their dedication, their professionalism, what they have been able to do in the past few years to get us to this point in our growth journey,” Rogers said. “We are doing this acquisition from a position of strength. ... This is a major step for us. But the only reason we are in a position to do a transaction this size is because of the success 10,000 Eastman men and women have had running these core businesses and getting us to this point.”
The acquisition is expected to extend Eastman’s global reach, particularly into Asia Pacific. As a result, Eastman expects to have a compound annual growth rate of nearly 10 percent for the next several years in that part of the world.
Earnings will also get a boost. Eastman expects earnings per share to be about $5 in 2012, excluding acquisition-related charges, while earnings per share are expected to top $6 in 2013, Rogers said. Eastman just announced record earnings per share of $4.86 in 2011.
Meanwhile, Eastman has identified annual cost synergies of about $100 million through the end of 2013 as a result of the acquisition. Savings will come from reducing corporate costs, raw material synergies, and improved manufacturing and supply chain processes.
And Eastman expects to realize tax benefits from the acquisition due to Solutia’s historical net operating losses and other tax attributes, which are expected to contribute to $1 billion in free cash flow through 2013.
Solutia was formerly part of Monsanto but was spun off as a separate entity in 1997. In 2003, Solutia filed for Chapter 11 bankruptcy protection. It emerged from bankruptcy five years later.
Rogers said Solutia was able to define its liabilities through bankruptcy, which ultimately made the company stronger.
“It was an advantage for them to do that, get their liabilities quantified, and be able to move on and start growing their company again. So they’ve come out of bankruptcy in quite strong fashion, and now they’re a very good-looking company,” he said.
Headquartered in Kingsport, Eastman posted sales of $7.18 billion in 2011. The company employs 10,000 people worldwide.
To comment, you must register and verify your email address by telephone.
Comments are the sole responsibility of the registered user participating in online discussions. You agree not to post comments off topic, abusive, obscene, defamatory, vulgar, threatening or an invasion of privacy. Violators may be banned.
Browse Premiere Local Businesses
Isn't it amazing how far Eastman Chemicals has come! When Kodak spun it off it was considered the proverbial red haired step child and many didn't think it would last too long. Now they're making multi-billion dollar deals and doing great while Kodak is going bankrupt. Maybe Eastman Chemicals should buy Kodak and try to fix it. I'm sure it could get it for a bargain price right now.