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Mitsubishi Rayon Will Buy Lucite

Deal will launch Japanese firm to top spot in acrylics

by Jean-François Tremblay
November 17, 2008 | A version of this story appeared in Volume 86, Issue 46

Credit: Lucite
Lucite is starting up a new methyl methacrylate plant in Singapore.
Credit: Lucite
Lucite is starting up a new methyl methacrylate plant in Singapore.

IN A DEAL largely financed by bank loans—unusual amid the global credit crisis—Japan's Mitsubishi Rayon will acquire Lucite, an acrylic plastics maker and the world's leading producer of methyl methacrylate, for $1.6 billion.

Lucite was formed in 1993 when ICI acquired DuPont's methyl methacrylate business and the Lucite name. The private equity firm Charterhouse Capital Partners acquired a majority stake in Lucite in 1999 in a deal worth $840 million.

At $1.3 billion, the current stock market value of Mitsubishi Rayon is less than what it is paying for Lucite. The Japanese firm cleared a net profit of only about $1 million on sales of $2 billion in the first half of the fiscal year that ends on March 31, 2009. It held about $200 million in cash on Sept. 30. The acquisition of Lucite is being financed largely by Mitsubishi Rayon's main bank, the Bank of Tokyo-Mitsubishi UFJ.

The deal makes strategic sense for Mitsubishi Rayon, says Masami Sawato, director of chemical sector research at Credit Suisse Securities in Tokyo. "Methyl methacrylate is one of Mitsubishi Rayon's core businesses," he says. The company is also building or expanding its own facilities in Japan, China, Thailand, and South Korea.

But the debt Mitsubishi Rayon is taking is worrisome, Sawato adds. "From a financial point of view, things will be tight in the short term," he says. He does not expect that other Japanese chemical firms will be making such large acquisitions soon because most don't have enough cash on hand and their bankers will not back them to the extent that the Bank of Tokyo-Mitsubishi is bankrolling Mitsubishi Rayon.

Lucite is now starting up a 120,000-metric-ton-per-year methyl methacrylate plant in Singapore that uses ethylene, carbon monoxide, and methanol as raw materials instead of hydrocyanic acid and isobutylene. The new technology, never before implemented on a commercial scale, provides cost savings as high as 40% per ton of material, the company says.

The deal will boost Mitsubishi Rayon's headcount by 2,000 people and its annual sales by more than 40% to $6.25 billion.



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