In a $255 million all-cash deal, Westlake Chemical Corp. will buy the polyethylene business of Eastman Chemical Co.
The two firms announced the deal Oct. 10. The acquisition includes three PE plants and a plant that makes Epolene-brand specialty polyolefins and polyolefin waxes, and other specialty resins. All the sites are in Longview, Texas. A 200-mile-long ethylene pipeline between Longview and Mont Belvieu, Texas, also will change hands.
The PE and Epolene businesses rang up about $680 million in sales in 2005. Total production of low and linear low density PE in Longview is about 1.1 billion pounds. Houston-based Westlake already operates about 1.4 billion pounds of combined LDPE/LLDPE capacity in Lake Charles, La. After the acquisition, Westlake will rank No. 6 in North American PE capacity, with 2.5 billion pounds of annual production.
The deal also calls for the gradual shutdown of an unspecified amount of older ethylene capacity at the Longview site. Eastman spokeswoman Martha Lawson said some ethylene production in Longview dates back to the 1960s and 1970s. The acquisition ``is an excellent strategic fit for Westlake,'' President and Chief Executive Officer Albert Chao said in a news release. ``This transaction will further strengthen our position in the growing North American polyethylene market.''
About 255 Longview employees will continue to produce PE for Westlake at the site, Eastman's Lawson said. Eastman, based in Kingsport, Tenn., has a similar polypropylene-making arrangement with Huntsman Corp. at the Longview site. Most of the remaining 140 employees are expected to be reassigned within Westlake, according to Westlake spokesman David Hansen.
``While polyethylene is a strong business, Eastman has an uncompetitive ethylene position because of our older cracking facilities,'' Brian Ferguson, Eastman chairman and CEO, said in a news release.
Industry analysts Robert Bauman and Kevin McCarthy each see the deal as a positive event.
Eastman's PE business ``had been available for some time, but potential buyers wanted to be sure the market was still improving,'' said Bauman, who is with Nexant Inc. in Houston. He added that the business has room to grow in the current business cycle.
``Westlake isn't buying at the top,'' he said. ``We expect other assets in commodity polymers to become available as owners decide these businesses are noncore or if they're not satisfied with results.''
McCarthy, a stock analyst with Banc of America Securities in New York, said in a note to investors that Westlake ``appears not to have overpaid'' for the PE unit, which he described as having been acquired at ``a thrifty multiple.''
The shutdown of Eastman's older ethylene capacity also will benefit the market for that material, McCarthy added.
Westlake's Hansen said that the addition of specialty plastics such as acrylate copolymers and enhanced grades of LLDPE ``broadens [Westlake's] product mix and strengthens our overall position with a large group of customers.'' The firm ``will continue to look at opportunities in the marketplace,'' he added.
Eastman ranks as the world's largest PET maker and is expanding in that area by opening a major plant in Columbia, S.C., later this year. Eastman makes a variety of chemical products at a massive site in Longview, where it employs 1,600. The firm posted total sales of about $7 billion in 2005.
Westlake, a unit of Taiwanese conglomerate Westlake Group., posted sales of about $2.4 billion in 2005. The firm also makes PVC and several plastic feedstocks, in addition to owning PVC pipe maker North American Pipe Corp., also of Houston, and PVC fence maker Westech Fence Inc. in Mount Vernon, Ind.