Many suitors possible for Bayer's MaterialScience unit

By Frank Esposito
Senior Staff Reporter

Published: May 14, 2014 1:56 pm ET
Updated: May 14, 2014 2:05 pm ET

Image By: Bayer AG Bayer's headquarters operation in Leverkusen, Germany.

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Topics Materials, Mergers & Acquisitions, Materials Suppliers
Companies & Associations Bayer MaterialScience LLC

Bayer AG has a wide range of options to choose from if it truly is looking to unload its Bayer MaterialScience unit, which includes major polycarbonate and polyurethane businesses.

Officials with Bayer, a chemicals and plastics conglomerate based in Leverkusen, Germany, declined to comment on an April 28 report from Bloomberg News that said that the firm is “exploring the sale” of the unit, which has annual sales of about $15.5 billion and employs 14,300 worldwide.

The story added that Bayer wanted to sell BMS to focus on its health care unit. This idea was supported May 6 when Bayer agreed to pay $14.2 billion in cash for the consumer care business of Merck & Co. Inc. That business includes such brands as Claritin, Coppertone and Dr. Scholl’s.

According to the April 28 report, a potential BMS sale to German firm Evonik Industries AG fell through. So who else might be willing to pay Bayer’s asking price for BMS — which could approach $11 billion?

Selling BMS off in parts to several different buyers is “a strong possibility,” according to Robert Bauman, president of the Polymer Consulting International consulting firm in Spring, Texas.

“There are very few companies with the capital to buy it all and it’s much more specialized,” Bauman said. “This would tend to rule out the commodity plastics companies, but you never know.”

Market analyst Phil Karig listed Styron LLC as a company that “might take a serious look at the Bayer assets.” Berwyn, Pa.-based Styron is owned by private equity firm Bain & Co. In 2013, Styron posted sales of $5.3 billion and has announced plans for an initial public offering.

Image By: Bayer AG CDs made with Bayer's polycarbonate.

A sale to Styron “would reduce the number of U.S. polycarbonate producers from three to only two, [but] Styron might consider selling off their current U.S. assets in order to pass regulatory muster and increase their presence in the local and global polycarbonate markets,” explained Karig, who’s managing director of the Mathelin Bay Associates consulting firm in St. Louis.

He added that BMS didn’t fit the type of business that Evonik has been focusing on. Karig also ruled out Saudi Arabian conglomerate Sabic as a possible BMS buyer because of the size of both firm’s PC businesses.

Karig additionally mentioned other private equity investors as possible BMS buyers. Plastics mergers and acquisitions pro John Hart agreed, saying that there are “a number of strategic and financial buyer candidates for Bayer’s plastics business.”

“I find it interesting that [Bayer] had recent discussions with Evonik,” said Hart, plastics and packaging group director for P&M Corporate Finance LLC in Southfield, Mich. “There are certainly a number of other strategic players where this business could fit and provide synergy.”

But he added that given the size of the BMS unit and the “favorable market dynamics” — including debt availability — for private equity, a BMS transaction “would be ideal for one of the large private equity players.”

Hart cited Carlyle Group’s 2013 purchase of DuPont Co.’s performance coatings unit as a recent example of a major private equity group investing in a specialty chemicals or plastics asset. Washington-based Carlyle paid $4.9 billion for that business.

Based on sales, BMS was the smallest of Bayer’s three main business units in the first quarter of 2014, with revenue of about $3.9 billion. First-quarter sales at BMS were flat vs. the same quarter in 2013, but the unit’s pretax profit grew almost 80 percent to just over $500 million.

Image By: Bayer AG Bayer is investing in new production at Baytown, Texas.

The possible selloff hasn’t slowed BMS activity in recent months. In March, the unit bought a Texas polyurethane feedstock plant from DuPont Co. The plant in Baytown, Texas, makes aniline, a feedstock used to make MDI-type PU, which is a raw material for rigid PU foams for insulation in the construction market.

The facility already is part of a larger complex operated by BMS. In the last two years, BMS has invested about $120 million in process, reliability, quality and environmental improvements in Baytown. The site also makes TDI-type PU as well as polycarbonate.

On May 14, BMS unveiled plans to invest $20 million for its “Dream Production” production line in Dormagen, which will use carbon dioxide as a precursor for polyurethane. The company estimated the site will be able to product 5,000 metric tons of PU foam annually once it opens in 2016.

And at a K show preview event in June, BMS disclosed plans for the unit to build a commercial-sale plant making polyurethane and related products from carbon dioxide in Germany by 2015. The plant would have annual capacity of between 10 million and 20 million pounds.

Bayer’s last major corporate restructuring occurred in 2005, when it split off some of its plastics, rubber and specialty chemicals businesses into Lanxess AG.


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Many suitors possible for Bayer's MaterialScience unit

By Frank Esposito
Senior Staff Reporter

Published: May 14, 2014 1:56 pm ET
Updated: May 14, 2014 2:05 pm ET

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