South Korea’s DL Chemical will acquire Kraton

The US chemical maker Kraton has agreed to sell itself to a firm, South Korea’s DL Chemical, that it already sold a large business to, in a transaction valuing Kraton at $2.5 billion.

Last year, Kraton sold its Cariflex business—which makes the natural rubber substitute polyisoprene—to DL, then known as Daelim Industrial, for $530 million. The new owners swiftly invested $50 million to expand polyisoprene capacity in Brazil.

Now, the South Korean firm is taking another trip to the buffet table for the rest of Kraton, which had sales in 2020 of $1.6 billion and operating profits of $70 million.

In the sale announcement, Kraton CEO Kevin M. Fogarty notes that the price DL is paying represents a 50% premium over Kraton’s market value in July, when rumors emerged that the company might be for sale. DL Chemical’s chairman, Sang Woo Kim, says in the same announcement that DL has long been “highly interested in Kraton’s specialty polymer and bio-based chemical business.”

About 55% of Kraton’s sales come from styrenic block copolymer elastomers used in roofing, footwear, automotive, and other applications. The rest of its business is in pine chemicals. The company refines the by-products of papermaking into chemicals like fatty acids, rosin, and terpenes. Kraton bought this business—then known as Arizona Chemical—in 2016 as part of a diversification strategy.

DL Chemical was formed early this year when Daelim Industrial split into DL Holdings and a construction business. DL Holdings has annual sales of about $1.7 billion annually. DL Chemical, which makes polyethylene and the elastomer polybutylene, makes up about 60% of those sales.

In a note to clients about the deal, UBS stock analyst John Roberts says DL and Kraton have more than just the polyisoprene business in common, pointing out that the firms appear “to have adjacent C-4 chemical products and a small overlap in lube additive ingredients.”

Recent years have seen other purchases of US firms by South Korean companies. In 2019, a consortium of South Korean firms bought the silicones company Momentive. And in 2018, SK Holdings bought Ampac Fine Chemicals.