Eastman buying Solutia for $3.4 billion

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KINGSPORT, TENN. (Jan. 27, 9:30 a.m. ET) — Specialty plastics and chemicals maker Eastman Chemical Co. has acquired Solutia Inc. — a maker of specialty plastic films and specialty chemicals — for almost $3.4 billion.

Kingsport, Tenn.-based Eastman will pay stockholders in St. Louis-based Solutia $22 per share, a 42 percent premium over Solutia’s recent stock price. The deal is expected to create cost synergies of about $100 million by the end of 2013.

“The acquisition of Solutia is a significant step in our growth strategy,” Eastman Chairman and CEO Jim Rogers said in a Jan. 27 news release. “The addition … will broaden our geographic reach into emerging geographies, particularly Asia Pacific.”

Solutia’s plastic products include window interlayers made from polyvinyl butral, and performance films based on engineering resins. The firm also was involved in nylon resin before selling off that business in 2009.

Eastman produces Tritan-brand copolyester and other specialty resins. The firm was a major player in the PET resin market for decades before exiting that market in recent years.

In the news release, officials pointed out that Eastman and Solutia “share several key fundamentals,” including “a polymer science backbone.” They added that “the overlap of key end markets is expected to provide opportunities for growth.”

Solutia operates 23 manufacturing sites worldwide – including nine in the U.S., three in Germany, two each in Brazil, Belgium and the United Kingdom, and single plants in Japan, Malaysia, China, Mexico and France. The firm employs 3,300 worldwide, generating about one-third of its sales from Europe and one-fourth from the U.S. Major end markets for Solutia’s products include industrial (20 percent), tire and rubber replacement (20 percent) and automotive OEMs (19 percent).

Eastman employs about 10,000 worldwide, selling its products into end markets ranging from packaging to medical to cosmetics.

Both firms reported their full-year financial results for 2011 this week. Solutia posted sales of almost $2.1 billion – up 7.5 percent from 2010 – while its annual profit more than tripled to $267 million. At Eastman, sales for 2011 grew 23 percent to almost $7.2 billion, as profit soared almost 60 percent to $696 million.

Specialty Plastics was the smallest of Eastman’s four reporting segments during 2011 with sales of almost $1.2 billion. That total was up almost 15 percent vs. 2011 and represented almost 17 percent of the firm’s overall sales. Specialty Plastics posted operating earnings of $105 million for 2011 – up 19 percent vs. 2011.

For Solutia, its Advanced Interlayers unit brought in about 43 percent of overall sales in 2011, with Performance Films generating an additional 14 percent. AI’s $897 million sales total was up eight percent vs. 2011, while PF’s sales of $298 million represented 18 percent growth.

Pretax profit for both units also increased during 2011, with AI growing three percent to $194 million and PF climbing almost 20 percent to $55 million.

The sale ends a tumultuous 15 years for Solutia. The firm was spun off from Monsanto Co. in 1997, but filed for bankruptcy in 2003 because of a downturn in sales and because of costs related to an environmental cleanup at its site in Anniston. Ala. Solutia exited bankruptcy in early 2008 and has sold or spun off several businesses – including nylon resin - since then.

The deal also represents Eastman’s biggest step in reinventing itself since declining profit and low growth led the firm to sell off the last part of its PET business in 2010. Eastman’s U.S.-based PET business was the last to go, after the firm sold off its foreign PET assets. The Eastman unit that included PET posted a loss of $66 million in its last full year of operation.

Initial reaction to the deal on Wall Street was positive, sending Eastman’s per-share stock price up 27 percent to almost $50 in mid-day trading Jan. 27.