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June 29, 2017 02:00 AM

PolyOne sells former Spartech business for $115 million

Frank Esposito
Senior Staff Reporter
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    Plastics News
    Patterson

    PolyOne Corp. is selling its Designer Structures & Solutions unit to private equity firm Arsenal Capital Partners for $115 million. PolyOne had acquired the major plastic sheet producer for almost $400 million in 2013.

    DSS includes most of the former Spartech Corp. The business had struggled financially and posted an operating loss of almost $4 million in 2016. The sale includes sheet, rollstock and packaging assets.

    “The decision to divest DSS comes after evaluating several strategic options for the business and concluding this is the best course of action for our customers, associates and shareholders,” PolyOne Chairman, President and CEO Robert Patterson said in a June 29 news release.

    He described New York-based Arsenal as “very well positioned to complete the transformation work we have begun and serve DSS customers going forward.”

    PolyOne did not say how many facilities or employees are affected by the sale. A spokesman said the firm would provide more details after the deal closes, which is expected in the third quarter.

    Arsenal officials said they could not comment further. The firm now has made 22 plastics-related acquisitions since 2012. Most recently, Arsenal bought part of the polyurethane foams unit of Covestro LLC in February.

    “Looking back at the Spartech acquisition completed in 2013, there were a number of positive, value-creating elements of the deal,” Patterson said. “These include the color concentrate and formulation assets that have seamlessly integrated into the other segments of PolyOne, as well as the beginnings of our IQ Design services, which are now broadly used across the entire company.

    “We intend to leverage these assets going forward, as well as seek out new investments that expand our material science, polymer formulation and world-class service capabilities.”

    Proceeds from the sale will be used to pay down short-term borrowings and fund ongoing growth initiatives. PolyOne expects an after-tax charge of $220 million in the second quarter related to the sale.

    Kevin Hocevar, a stock analyst who covers PolyOne for Northcoast Research in Cleveland, said in an email to Plastics News that the sale “isn't overly surprising.”

    “PolyOne was pretty clear on its first-quarter conference call that they wouldn't allow DSS to continue to operate as is, and would likely have to initiate some type of restructuring program or divest the business,” he said.

    “It appears as if they went the divestment route, which I think is the right move. DSS has been a distraction to PolyOne as well as the investment community, and it has taken away from what is a really good core story at PolyOne.”

    DSS posted sales of almost $402 million in 2016, down 11.5 percent from the previous year. The unit was the smallest of PolyOne's five operating units in 2016, generating 11.4 percent of sales before eliminations.DSS is North America's 19th largest film and sheet producer, according to the most recent Plastics News ranking.

    In the first quarter of 2017, DSS had sales of $102.1 million — down almost 6 percent vs. the year-ago quarter — and an operating loss of $3.3 million.

    When PolyOne acquired Spartech, Spartech generated about 25 percent of its sales from color and specialty compounds, where it had competed with PolyOne.

    The Spartech transaction closed in early 2013. By July of that year, PolyOne announced it was closing six former Spartech sheet plants and eliminating about 250 jobs. It followed those moves in 2015 by closing a sheet and rollstock plant that employed about 70 in Granby, Quebec.

    Overall, PolyOne posted sales of $3.3 billion in 2016. The firm is North America's largest compounder and concentrates maker and one of the region's largest resin distributors.

    In the first quarter of 2017, PolyOne posted sales of $898.8 million, up 6 percent over the same quarter in 2016. Its first-quarter profit was $46 million, up almost 21 percent in the same comparison.

    On Wall Street, PolyOne's per-share stock price was near $32.20 on Jan. 1 but closed near $38.10 on June 29 for an increase of almost 19 percent so far in 2017.

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