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Kraton To Acquire Arizona Chemical

Odd Couple: Firms claim market overlap despite different chemistry

by Alexander H. Tullo
September 28, 2015

Credit: Shutterstock
Arizona’s main raw materials are by-products of pine tree pulping.
Picture of pine trees.
Credit: Shutterstock
Arizona’s main raw materials are by-products of pine tree pulping.

In an unusual combination of businesses, Houston-based Kraton Performance Polymers, a specialist in styrenic block copolymers, has agreed to acquire the pine chemicals giant Arizona Chemical for $1.4 billion.

Arizona is the world’s largest producer of pine chemicals. The company upgrades the paper-making by-products crude tall oil and turpentine into derivatives such as rosin and terpene resins.

The company generated $184 million in pretax earnings on $863 million in sales last year. Arizona was International Paper’s chemical unit until 2007, when it was purchased by the private equity firm Rhône Capital. Its current owner, American Securities, acquired the firm in 2010.

The announcement comes only a week after the unveiling of another major pine chemicals deal: Symrise’s $420 million purchase of the terpene chemicals maker Pinova.

Kraton, which earned $147 million before taxes in 2014 on $1.23 billion in sales, has been looking to do a deal. Last year the company struck an agreement to merge with the SBC business of Taiwan’s LCY, but walked away soon after.

Though Arizona and Kraton make products that are chemically different, some 50% of Arizona’s sales come from markets in which Kraton also participates, according to Kraton CEO Kevin M. Fogarty. Both companies, for example, make asphalt additives and adhesives for tapes and labels. And the two firms both have a presence in lubricants and oil field chemicals.

“In addition, given the renewable nature of Arizona Chemical’s product and technology offerings, the complementary growth we foresee can be accomplished while reducing our overall exposure to hydrocarbon-based feedstocks,” Fogarty says.

Fogarty argues that the combined company should be able to reduce annual costs by $65 million through reduced corporate overhead and more streamlined manufacturing.



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