Celanese and the New York City-based private equity firm Blackstone will combine their acetate tow businesses into a joint venture that will be the world’s leading producer of the cellulose acetate fiber, used mainly in cigarette filters.
Celanese will own 70% of the joint venture; Blackstone will hold the rest. It will command more than 25% of the roughly 800,000 metric tons per year of global acetate tow capacity. Blackstone and Celanese estimate that the partnership will have about $1.3 billion in annual sales and robust profit margins of some 40% before taxes.
Blackstone became involved in acetate tow when it acquired Solvay’s business in a $1.1 billion deal completed earlier this month. Celanese has long been a major factor in the business, with strength in China, where it operates three joint ventures.
Acetate tow is made by treating wood pulp with acetic anhydride to yield cellulose acetate, which is spun into a fiber for filtered cigarettes.
Although profitable, the business is in a state of decline. People are smoking less. And Chinese companies are building big acetate tow plants, reducing the need to import the material from abroad. This year, Celanese estimates, China’s acetate tow imports will be less than a quarter of what they were five years ago.
The new joint venture will take on $2.2 billion of debt. Upon the close of the deal, Celanese will receive a one-time dividend of $1.6 billion.
Celanese CEO Mark Rohr sees the joint venture as a way to extract cash from the business and redeploy it to higher-growth areas, such as engineering polymers. At the same time, the partnership will benefit from greater efficiency and market focus.
“The joint venture will be better positioned to invest in support of transforming consumer trends such as smokeless tobacco and super slim cigarettes as well as new uses of cellulose acetate,” Rohr told stock analysts on June 19.
Blackstone has a history with Celanese. Blackstone purchased the Texas-based company in 2004 and owned a large stake in it until 2007.