Issue Date: April 26, 2004
LUBRIZOL TO ACQUIRE NOVEON
In a move to accelerate diversification beyond its traditional slow-growth lubricant additives business, Lubrizol has agreed to acquire Noveon and its portfolio of higher growth specialty chemical businesses for $1.84 billion.
When the deal closes in about three months, subject to regulatory approvals, it will create a $3.2 billion company with sales evenly split between fuel and lubricant additives and specialty chemical additives.
The deal was signed just a few days before Noveon’s management was to go on the road to promote the company’s initial public offering. Though Lubrizol wanted to acquire Noveon for about a year, discussions “heated up” after Noveon filed offering documents with the Securities & Exchange Commission at the end of February, says Steven J. Demetriou, Noveon’s CEO.
Noveon managers and a group of private investors—AEA Investors, DLJ Merchant Banking Partners, and MidOcean Capital Investors—contributed $352 million in equity when they acquired the firm, formerly BFGoodrich Performance Materials, three years ago. They will walk away with $920 million: a $568 million premium. Lubrizol will assume $920 million in Noveon’s debt.
“I expect the IPO would have been a success,” says Demetriou, who does not plan to stay with Noveon. “But given the uncertainties of the stock market, this was a better deal.”
Noveon will retain its name and operate as a subsidiary of Lubrizol. Its businesses, with annual sales of $1.2 billion, will be combined with Lubrizol’s industrial specialty additives business to make a unit with $1.6 billion in sales. Donald W. Bogus, the Lubrizol vice president in charge of the industrial additives business, will head Noveon.
Following the success of eight smaller acquisitions since 2000, Lubrizol decided about a year ago that “the time was right to intensify the pursuit of larger acquisitions,” CEO William G. Bares says. Lubrizol had actually considered buying Noveon three years ago from BFGoodrich, he says, but that was before Lubrizol had significant businesses in coatings and personal care—areas of strength for Noveon.
But then Lubrizol acquired Avecia’s coatings additives business earlier this year and a number of personal care product lines from Dow Chemical’s Amerchol subsidiary in 2003, significantly expanding its presence in those areas.
James L. Hambrick, Lubrizol’s president and the point man in negotiations with Noveon, admits that not all of Noveon matches up so neatly with Lubrizol. Noveon’s thermoplastic polyurethane and chlorinated polyvinyl chloride businesses have no match in Lubrizol. But they have strong market positions and nice growth rates and “are not candidates for sale,” he says.
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