Mergers & Acquisitions

Kraton Performance Polymers Inc. acquires Arizona Chemical

Kraton Performance Polymers Inc. acquires Arizona Chemical

Houston, Texas, U.S.A.-based Kraton Performance Polymers, Inc. said it would buy privately held specialty chemicals producer Arizona Chemical Holdings Corp. for USD 1.37 billion in cash. The seller of Arizona Chemical is AZC Holding Company, LLC, which is principally owned by investment funds managed by American Securities LLC.

Arizona Chemical, based in Jacksonville, Fla., U.S.A., is a leading global producer of high-value performance products and specialty chemicals derived from non-hydrocarbon, renewable raw materials.

The company sells its products into adhesive, road and construction and tire markets, and it produces and sells a broad range of chemical intermediates into markets that include fuel additives, oilfield chemicals, coatings, metalworking fluids and lubricants, inks, flavors and fragrances and mining. The company operates a network of nine strategically located manufacturing facilities in North America and Europe, and operates three state-of-the art Science and Technology centers in Almere, The Netherlands, Savannah, Georgia, U.S.A. and Shanghai, China.

Kraton Performance Polymers, Inc., through its operating subsidiary Kraton Polymers LLC and its subsidiaries, is a leading global producer of engineered polymers and one of the world’s largest producers of styrenic block copolymers (SBCs). Kraton’s polymers are used in a wide range of applications, including adhesives, coatings, consumer and personal care products, sealants and lubricants, and medical, packaging, automotive, paving, roofing and footwear products.

Arizona Chemical’s end use market exposure is highly complementary with that of Kraton, particularly in markets such as adhesives, roads and construction, coatings and oilfield chemicals.

“The acquisition of Arizona Chemical is consistent with our stated strategy, and it creates new opportunities to deepen our customer relationships by expanding Kraton’s presence in our core markets, where more than 50% of Arizona Chemical’s sales are directed,” said Kevin Fogarty, Kraton president and CEO.

“This transformational acquisition will extend Kraton’s technology and market diversification, while substantially increasing profitability and free cash flow, creating a more robust platform for growth and value creation for our stockholders,” he said.

Kraton said it will benefit from pre-tax synergies of USD 65 million, which will be achieved by 2018.

“On a combined basis we expect to generate free cash-flow of approximately more than USD 450 million over the first three years of combined operations, which will be available for debt reduction and allocation to stockholders,” Fogarty said.

“The fact that Kraton and Arizona Chemical have such a highly complementary market focus, coupled with a shared business philosophy fundamentally premised on product differentiation and portfolio shift to drive improved profitability, is what makes this such a compelling combination,” said Dan Smith, chairman of Kraton’s board of directors.

The USD 1.37 billion base purchase price is subject to adjustment for cash and indebtedness at closing, as well as an adjustment for working capital and other items.

Kraton will finance the deal through debt facilities that have been committed by Credit Suisse Securities (USA) LLC, Nomura Securities International, Inc. and Deutsche Bank Securities, Inc.

The acquisition is subject to regulatory and other customary approvals and conditions and is currently expected to close in late 2015 or early 2016.

Financial advisors for Kraton are Lazard, J.P. Morgan Securities LLC and Nomura Securities International, Inc. and legal advisors for Kraton are Baker Botts L.L.P. and Cleary Gottlieb Steen & Hamilton L.L.P.

Financial advisors for the sellers are Credit Suisse and Morgan Stanley and their legal advisor is Weil, Gotshal & Manges LLP.

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