Chemical company Univar Inc. has a deal to buy Nexeo Solutions Inc., but its CEO says company leaders aren't sure if Univar is the “right home” for Nexeo's $1.8 billion plastics business.
In a Sept. 17 conference call with analysts, President and CEO David Jukes said that Univar “hasn't been in plastics because we've chosen not to be in plastics.”
When Univar completes its acquisition of Nexeo, plastics would represent less than 10 percent of the Univar's sales, although plastics makes up more than half of total sales of Nexeo. There is an overlap of only 1-2 percent among Nexeo's plastics and chemicals customers.
“The question really is, are we the right home for this fantastic plastics business, which has lots and lots of opportunities?” Jukes asked. “Whether we can offer it the runway that it needs, the support it needs the financing it needs to fulfill its outstanding potential and whether that wouldn't be better in someone else's hands.”
Nexeo of The Woodlands, Texas, is one of North America's largest resin distributors, and is a major distributor of specialty chemicals as well. Downers Grove, Ill.-based Univar is a global distributor of chemicals and ingredients and a provider of value-added services.
The deal includes the assumption of Nexeo's debt and other obligations and values Nexeo at $11.65 per share. Nexeo's per-share stock price closed at $10.01 on Sept. 17, just before the deal was announced.
“This transformational combination is designed to create the premier global chemical and ingredients distributor, with exciting opportunities for our customers, suppliers, employees and investors,” Jukes said in a news release.
“Together, we will drive growth and shareholder value with the largest North American sales force in chemical and ingredients distribution, the broadest product offering, and most efficient supply chain network in the industry,” he added.
Officials expect the deal to generate run rate cost savings of $100 million in its first full year and to reduce annual capital expenditures by $15 million.
Nexeo CEO David Bradley added that his firm “shares Univar's confidence in the future of our combined enterprise, given the strong strategic alignment across our business models, go-to-market strategies, superior product offerings, and digital capabilities.”
“We are especially pleased that Nexeo's employees are highly valued by Univar, and that our shareholders will be able to participate in the company's future success through ongoing equity ownership,” Bradley said.
Univar said it has hired an external adviser to evaluate strategic alternatives for Nexeo's industry-leading plastics business, which “may include a potential divestiture,” officials said in the release. Bradley added on the call that “the assets of chemicals vs. the assets of plastics are, for the most part, single purpose dedicated to each one of those lines of business … it's not comingled.”
The plastics unit will continue to be led by Executive Vice President Shawn Williams. The review is expected to be completed concurrent with the close of the transaction.
Just who might be interested in picking up Nexeo's plastics business is not clear.
Market analyst Phil Karig said in an email to Plastics News that Univar's decision to explore spinning off Nexeo's plastic distribution unit “may have more to do with Univar wanting to limit long-term debt obligations following the acquisition than any dislike of plastics distribution in general or Nexeo's distribution business in particular.”
He added that “some of the more obvious suitors” to buy the Nexeo plastics unit might include global materials firm Ravago Group of Belgium — which could be looking to add to its current plastics distribution business — or U.S. petrochemicals giant LyondellBasell Industries, which might want to follow up its recent purchase of top compounder A. Schulman Inc.
Karig said a list of potential buyers could also include “just about any of the many private equity investors with enough money to swing a deal.”
Although one executive at a rival distributor said that Nexeo “would be a big uplift to whoever would buy them,” others in the industry weren't as complimentary.
One longtime market veteran said that Nexeo “seems to have gone from market leader to an also ran.”
“They lost market share and prestige as they went from General Polymers to Ashland to Nexeo,” he added. “They've grown faster than their competitors recently, but their profitability suffered significantly. Their competitors improved profitability while losing market share.”
Another executive at a competing firm said other distributors might find it challenging to acquire the Nexeo plastics unit because of potential conflicts with resin suppliers.
Univar's management ranks have some connections to the plastics market. Jukes worked for the Distrupol unit earlier in his career and was at other plastics firms before joining Univar in 2003. He became president and CEO in May, replacing Stephen Newlin, who previously had led U.S. compounding leader PolyOne Corp.
Newlin had joined Univar's board in 2014, the same year he retired from PolyOne. He was named CEO in 2016 and was asked to improve the company's finances and to find and develop Univar's next CEO. Univar officials credited Newlin with meeting those goals. Newlin had similar accomplishments in eight years at PolyOne.
The merger agreement provides for each share of Nexeo stock issued and outstanding to be converted into 0.305 shares of Univar common stock and $3.29 in cash, subject to adjustment at closing.
The transaction has been unanimously approved by the boards of directors of both companies, and is anticipated to close in the first half of 2019, subject to the approval of both Univar and Nexeo shareholders. The deal also requires receipt of regulatory approvals and satisfaction of other customary conditions.
Nexeo's key stockholders — TPG and First Pacific — have agreed to provide consent for the proposed transaction. Univar intends to finance the cash portion of the transaction and refinance Nexeo's existing debt with a combination of available cash and bank financing, for which it has received commitments.
Univar posted sales of almost $8.3 billion in 2017. Nexeo had sales of almost $3.6 billion in its 2017 fiscal year, which ended Sept. 30 of that year. Nexeo distributes resins, compounds and concentrates for more than 20 suppliers.
Univar's only plastics asset is Distrupol, which is one of Europe's largest resin distributors, sourcing material from 22 suppliers. Europe contributed about 22 percent of Univar's sales for the fiscal quarter, which ended June 30. A separate sales number for Distrupol was unavailable.
Distrupol competes with Nexeo's plastics unit in Europe, where Nexeo distributes resins for 22 suppliers. Nexeo generated about 14 percent of total sales from Europe in its most recent fiscal year. A separate sales number for the firm's plastics sales in Europe was unavailable.
Both Distrupol and Nexeo distribute materials in Europe for Sabic, Borealis and Teknor Apex.