Houston — Kraton Performance Polymers Inc. has agreed to acquire Arizona Chemical Holdings Corp. for $1.37 billion.
A company spokesman said the deal is on track to close by the end of 2015 or early 2016, pending a few more regulatory approvals.
The spokesman said the combined business projects to save about $65 million in overlap costs, expected to be achieved by 2018. However, he said there are no plans to reduce Arizona's product portfolio or employee base, which sits at nine manufacturing sites in the U.S. and Europe with technical centers in Savannah, Ga.; Almere, Netherlands; and Shanghai. The firm employs more than 1,000 worldwide.
“This transformational acquisition will extend Kraton's technology and market diversification, while substantially increasing profitability and free cash flow, creating a more robust platform for growth and value creation for our stockholders,” Kevin Fogarty, Kraton president and CEO, said in a statement.
Kraton's release said Arizona Chemical has a stable and attractive margin profile with adjusted EBITDA margins in excess of 20 percent for the past five years.
Fogarty said in the release that the firm expects to generate free cash flow of more than $450 million in the first three years of combined operations, which the company plans to be available for debt reduction and allocation to stockholders.
Arizona Chemical is a global producer of performance products and specialty chemicals derived from non-hydrocarbon, renewable raw materials. Its products are used in the adhesives, road and construction, and tire industries among other end markets. It reported about $1.23 billion in sales for 2014. The Kraton spokesman said adhesives account for about 31 percent of its business.
In the adhesives market, Arizona makes tackifier resins that are combined with styrene-block copolymers — products that Kraton produces — to create adhesive formulations. He said while the firms compete in the same markets, their complementary technologies will strengthen the combined firm's position. The spokesman estimated that there is about a 50 percent overlap in common markets with similar customers.
Kraton sees value in Arizona's connections within the tire industry as a possible gateway for its polymers to break into the market. Arizona is present in the tire market with high silica used in high performance tires for wet road grip and extended rolling resistance.
“Between the tackifier resins and our products, you're looking at the majority of adhesive formulations,” the spokesman said. “We have some of the same customers in many places and in many common markets. There was a significant amount of overlap. We see an opportunity to use those channels to sell more of our product and vice versa.”
Kraton's polymers modify the tack and sheer properties in an adhesive. Customers use these polymers to determine how sticky the adhesive needs to be — ranging from a stick-it note to a permanent construction adhesive.
“Up until now, our R&D efforts have been focused on the polymer side,” the spokesman said. “But with both of these components in-house, our efforts will be more global, broader and more focused on the overall adhesive formulation.”
Kraton produces engineered polymers globally and is one of the world's largest producers of styrenic block copolymers. The firm manufactures its products at its facility in Belpre, Ohio, and at four others internationally — in Germany, France, Brazil and Japan. Its Japanese operation is an unconsolidated manufacturing joint venture.