Korean firms ink deal to acquire Momentive

A South Korean investment group has agreed to purchase the U.S. silicones maker Momentive Performance Materials in a deal valued at $3.1 billion, including debt and other liabilities.

The buyers include the chemical and silicones producer KCC Corp., the quartz and ceramics supplier Wonik QnC, and the private equity firm SJL Partners.

Momentive had before-tax earnings of $293 million on $2.3 billion in sales last year. About half of its sales came from silicones. Another 40% of its sales were from its additives business, which supplies urethane additives, silicone fluids, and silanes. The company also has a small quartz business.

Momentive was General Electric’s silicones business until the private equity firm Apollo Management bought it in 2006 for $3.2 billion. The company entered a short bankruptcy in 2014 because of high debt. Apollo remains the company’s largest shareholder, with a 40% stake.

Twice Momentive planned initial public stock offerings. One plan was to merge with another Apollo-owned company, the specialty chemical maker Hexion, and then go public. It was canceled in 2012. Momentive planned another stock offering last year, but it backed out at the last minute, blaming “adverse market conditions.”

According to the credit rating agency Moody’s, the two strategic buyers, KCC and Wonik QnC, will own a 45% and a 5% stake in Momentive, respectively. SJL will hold the balance.

“KCC and Wonik’s reach into an expanded geographical market and SJL’s solid investment backing and private equity expertise will further position the company for long-term success,” says Steve Suk Jung Lim, SJL’s chairman.

But because of the debt KCC will take on to complete the deal, Moody’s is placing the firm on watch for a credit downgrade. “While the acquisition will improve KCC’s scale and geographic diversification, the exposure to the highly competitive and cyclical silicone business will significantly raise its business risk, compared with KCC’s existing construction materials and paint business, which exhibits good business stability,” Moody’s analyst Sean Hwang wrote in a report to clients.