Carbon Fiber Makers Merge

Japan’s Toray Industries, the world’s largest producer of carbon fibers, has reached an agreement to purchase U.S. carbon fiber maker Zoltek for $584 million.

The purchase will give Toray, which sells mostly aerospace-grade fiber, a stake in the growing industrial carbon fiber business. The deal also vindicates the strategy of activist investor Jeffry N. Quinn, who has been pushing Zoltek to explore ways to boost its stock price since March.

Toray says it is buying Zoltek, which had sales of $186 million last year, to gain entry into the rising market for carbon fiber used to make wind turbine blades and automotive parts. The Japanese firm has about $1 billion in annual sales of mostly aerospace-grade carbon fibers, whose light weight and high strength are an asset in fuel-efficient airliners such as Boeing’s Dreamliner.

When the deal is completed in late 2013 or early 2014, Zoltek will become a subsidiary of Toray. Zoltek CEO Zsolt Rumy, who started the firm in 1988 and grew the business by converting acrylic-fiber operations in Hungary and Mexico to make carbon fiber, says the sale “represents a great result for our shareholders, customers, and employees.”

For investor Quinn and his allies, their 10% stake in Zoltek is now worth $58 million—more than double what it was worth in March. At the time, Quinn called for a special shareholders meeting to oust Zoltek’s board. He called it off when Zoltek agreed to hire an investment banker to sell itself.

For Toray, the purchase of Zoltek will advance a hitherto unsuccessful effort to enter the industrial fiber business, according to carbon fiber expert Anthony J. Roberts of AJR Consultant.

Roberts speculates that Toray would not have considered buying Zoltek if it hadn’t come on the market. “They probably bought Zoltek to block Mitsubishi Rayon,” he says.

Mitsubishi is an aerospace-grade carbon fiber maker that has been pushing aggressively into industrial fiber. Just last month, Mitsubishi and Thailand’s PTT said they might build an industrial carbon fiber plant in Thailand to take advantage of what they say will be a $1.3 billion industrial fiber business in Asia by 2020.