Tags: Eastman Chemical | Taminco | Apollo | cigarette

Eastman Chemical to Buy Apollo's Taminco for $1.8 Billion

Thursday, 11 Sep 2014 02:08 PM

Eastman Chemical Co., the world’s second-biggest producer of cigarette filter materials, agreed to acquire Taminco Corp. for about $1.8 billion in cash to add chemicals used in water treatment and agriculture.

Taminco shareholders will receive $26 a share, Kingsport, Tennessee-based Eastman said Thursday in a statement. That’s 8.9 percent more than Wednesday’s closing price. The transaction was also approved by Apollo Global Management LLC, the majority owner of Taminco, the Allentown, Pennsylvania-based company said in a separate statement.

Eastman Chairman and Chief Executive Officer Mark Costa is betting on rising demand for technologies that boost food output, with 46 percent of Taminco sales coming from products sold to farmers and ranchers. Taminco has about 1,000 employees at eight manufacturing sites who make amines, chemicals used in animal feed, crop chemicals, solvents and personal care products.

“It’s a good strategic fit,” Jim Sheehan, an Atlanta- based analyst at Suntrust Robinson Humphrey Inc., who rates Eastman neutral, said by phone Thursday. “It has some benefits for Eastman in the types of end-markets they want to expand into.”

Taminco rose 9.8 percent to close at $26.21 in New York. Eastman slid 1.1 percent to $82.34.

‘Go-Shop’

Taminco said it plans to actively solicit alternate proposals under the agreement’s 30-day “go-shop” provision. Seeking other bids “provides a real opportunity to determine if there are alternatives superior to the present offer from Eastman,” Taminco Chief Executive Officer Laurent Lenoir said in the statement.

“Taminco’s stock is trading above the bid price, which could mean that Eastman may have to raise its bid if another bidder emerges,” Carol Levenson, research director at Gimme Credit, said in a note Thursday.

The transaction is valued at $2.8 billion including assumption of about $1 billion of Taminco’s debt, Eastman said. That makes Taminco the second biggest acquisition for Eastman after its 2012 purchase of Solutia Inc. for $4.5 billion, according to data complied by Bloomberg.

Eastman is paying 10.9 times Taminco’s annual earnings before interest, taxes, depreciation and amortization, according to data compiled by Bloomberg. That compares with an average 7.3 times Ebitda paid for chemical companies so far this year.

Apollo Exit

The deal multiple is 9.5 times estimated adjusted 2014 Ebitda and 8 times after anticipated cost savings, Eastman CEO Costa said in a webcast Thursday.

Apollo is exiting Taminco after an initial public offering of shares in April 2013 that debuted at $15 each. Apollo owns 35.7 million of Taminco’s 66.5 million shares outstanding, according to data compiled by Bloomberg.

Taminco is the world’s largest producer of alkylamines and alkylamine derivatives, made by blending ammonia with an alcohol, such as methanol. Competitors include DuPont Co., BASF SE and Celanese Corp.

The raw materials used by Taminco are derived from natural gas, now abundant in the U.S. as a result of increased drilling in shale formations.

“This is clearly a play on cheap natural gas going forward,” Suntrust’s Sheehan said.

Cost Savings

Taminco will add at least 35 cents to per-share earnings next year, excluding acquisition-related costs, and more than 60 cents in 2016, Eastman said. Cost savings will be about 5 percent of Taminco’s annual revenue last year, or $60 million based on $1.2 billion in 2013 sales.

Eastman borrowed $3.5 billion to acquire Solutia and plans to finance the Taminco purchase with additional debt.

Standard & Poor’s Ratings Services lowered the outlook for Eastman to negative from stable, reflecting a 33 percent chance its credit rating will be reduced. S&P also said it may raise Taminco’s rating. S&P rates Eastman BBB, the second lowest investment grade, and Taminco B+, four levels below investment grade.

“The purchase of Taminco will initially weaken debt protection metrics but we would expect swift restoration of the balance sheet with free cash flow, as with past acquisitions,” Gimme Credit’s Levenson said.

Eastman’s financial adviser is Citigroup Inc. and Jones Day is acting as legal counsel. Morgan Stanley acted as financial adviser to Taminco and Kirkland & Ellis LLP acted as legal adviser.

Eastman is the second-biggest maker of acetate tow, used in cigarette filters, behind Celanese.

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Eastman Chemical, the world's second-biggest producer of cigarette filter materials, agreed to acquire Taminco Corp. for about $1.8 billion in cash to add chemicals used in water treatment and agriculture.
Eastman Chemical, Taminco, Apollo, cigarette
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2014-08-11
Thursday, 11 Sep 2014 02:08 PM
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