Eastman To Buy Solutia

Aiming to strengthen its business in specialty chemicals and in the Asia-Pacific region, Eastman Chemical has signed an agreement to purchase Solutia in a transaction valued at $4.7 billion.

Eastman says the combination of cash and stock it is offering for Solutia represents a 42% premium over the firm’s stock price at the close of the market on Jan. 26. Solutia had sales of just under $2.1 billion in 2011 and, adjusting for extraordinary items, racked up earnings of $243 million.

“This transaction provides Solutia’s shareholders with immediate value and an attractive premium, as well as the opportunity to benefit from the future prospects of a leading global chemicals producer,” says Solutia’s Chief Executive Officer Jeffry N. Quinn.

Solutia was spun off of Monsanto in 1997. Legacy liabilities such as retirement benefits, environmental remediation, and litigation weighed on the company in its early years. Solutia filed for Chapter 11 reorganization in 2003 and emerged from bankruptcy in 2008.

It has trimmed its portfolio since declaring bankruptcy. The company divested its stake in the Astaris phosphates joint venture in 2005, sold fine chemicals maker CarboGen Amcis in 2006, and unloaded its nylon unit, now known as Ascend Performance Materials, in 2009.

Last year, 43% of Solutia’s sales came from its interlayer business, which makes polyvinyl butyral film used in safety glass for car windshields and building windows. Recent years have seen the company expand this business into Asia. The division also makes ethylene vinyl acetate that is used to encapsulate photovoltaic cells.

Another 43% of Solutia’s sales were generated by its technical specialties business. This unit, Solutia says, is the world’s largest supplier of insoluble sulfur, used as a rubber vulcanizing agent. It also makes heat transfer and aviation hydraulic fluids.

“The addition of Solutia will broaden our geographic reach into emerging geographies, particularly Asia Pacific, establish a powerful combined platform with extensive organic growth opportunities, and expand our portfolio of sustainable products,” says Eastman’s CEO, James P. Rogers.

Excluding unusual items, Eastman earned $652 million last year on sales of $7.2 billion. It makes polymers and solvents for the coatings, inks, and adhesives industries; fibers such as acetate tow for cigarette filters; a variety of specialty chemicals based on oxo and acetyl chemistries; and specialty polyester and cellulose polymers.

The company has been acquisitive recently, though previous acquisitions have been more closely related to existing lines of business. Last year, it bought plasticizer and acetic acid maker Sterling Chemicals for $100 million. It bought benzoate plasticizer specialist Genovique Specialties in 2010.

Eastman says Solutia will have an immediate positive impact on its earnings. Eastman has identified $100 million in annual cost savings it believes it can generate by the end of 2013. The firm also can unlock some $1 billion in free cash flow through 2013 because of tax benefits from historical Solutia losses.