Brazilian plastics giant Braskem SA has made a major move into the North American market, buying the polypropylene business of Sunoco Inc. for $350 million in cash.
The deal was announced Feb. 1 and is expected to close by April 1. São Paulo-based Braskem will take on PP plants operated by Philadelphia-based Sunoco in Marcus Hook, Pa.; La Porte, Texas; and Neal, W.Va. Those plants have a combined annual capacity of 2.1 billion pounds. The sale also includes Sunoco's research and technology center in Pittsburgh.
The Sunoco PP business “has very competitive margins and access to competitive feedstock,” Braskem Chief Financial Officer Carlos Fadigas said in a Feb. 1 conference call.
The purchase “is in line with our strategic plan of establishing a foothold in the U.S. and enhancing the market for greenfield projects in Latin America,” he added. The U.S. market is attractive to Braskem, officials said, since it is the world's largest consumer of PP and is expected to grow at a rate of at least 1.3 times U.S. gross domestic product for the next several years.
In a news release, Sunoco Chairman and CEO Lynn Elsenhans said the sale “produces value for our shareholders by monetizing a business that has not been able to meet its cost of capital.”
Braskem is paying a multiple of four to five times earnings before interest, taxes, debt and amatorization (EBITDA) for the business, which Sunoco acquired in its 2000 purchase of Aristech Chemical Corp. from Mitsubishi Corp. for $695 million. At that time, the business included a 400 million- pound-per-year-capacity plant in Bayport, Texas, that Sunoco closed last year.
Sunoco is retaining ownership of a phenol and derivatives business that it also acquired in the Aristech transaction. In late 2001, former Sunoco CEO Jack Drosdick described the Aristech deal as “the biggest single thing Sunoco's done to grow the company in the last decade.”
Sunoco's PP unit had sales of $720 million and pretax profit of $70 million in 2009, according to Fadigas, who described the earnings multiple as “competitive.” Sunoco expects to record a pretax loss on the sale in the first quarter of 2010 of about $185 million to $195 million.
The PP plants use Spheripol-and Unipol-brand process technologies. In North America, Sunoco ranks fourth in PP capacity and fifth in annual sales, based on 2008 estimates. The unit's existing management — including senior Vice President Bruce Rubin — is expected to remain in place. Sunoco had been seeking a buyer for the unit since late 2008.
“The idea is to keep the management that's already there,” Fadigas said. “They know the customers and the clients and the business.”
Although the Sunoco PP business is not fully backward-integrated on propylene monomer feedstock, Fadigas said Braskem has a 10-year supply agreement in place with Sunoco and also will continue to source feedstock from LyondellBasell Industries, Valero Corp. and other suppliers.
“Seventy percent of our propylene needs are already contracted in advance,” he said. “We'll buy the other 30 percent on the spot market.”
Braskem recently signed another deal to buy a majority stake in Quattor Petroquimica in Brazil. That deal will make Braskem the largest producer of commodity plastics PP, polyethylene and PVC in the Americas.
Braskem will be the eighth-largest petrochemical firm after the Sunoco deal and will climb to seventh when it opens a 480 million-pound-capacity polyethylene plant in Brazil this year, he said.
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