PolyOne's Clariant deal gets high marks

PolyOne Corp.'s pending acquisition of the masterbatch concentrates business of Clariant AG is winning high praise from market watchers.

Avon Lake, Ohio-based PolyOne announced plans Dec. 19 to acquire that global business for $1.45 billion. The agreement followed months of speculation between Muttenz, Switzerland-based Clariant and Saudi Arabian conglomerate Sabic.

The PolyOne-Clariant deal is set for completion in the third quarter and values the Clariant business at about 11.1 times the annual earnings before interest, taxes, depreciation and amortization (EBITDA).

On a Dec. 19 conference call, PolyOne CEO, President and Chairman Robert Patterson described the acquisition as "a perfect match and one that aligns with the world's megatrends." He added that the deal is "truly transformational" for PolyOne and will make the firm a $4 billion business that will be "truly global."

In a recent research note, market analyst Kevin Hocevar of Northcoast Research in Cleveland said that "in our opinion, [Clariant's masterbatch business] has always been the holy grail for PolyOne, as it combines the company with its largest color/additive competitor … creating the unmatched global leader in the space."

Hocevar added that his firm views the multiple that PolyOne will pay for the Clariant unit "quite favorably," since it's slightly less than the 11.9 multiple that PolyOne's stock was trading at when the deal was announced. PolyOne expects $20 million in run-rate synergies by the end of the first year after the acquisition and a total run rate of $60 million by the end of the third year.

"Overall, we view these announcements very favorably for PolyOne, as we always viewed Clariant as the big M&A opportunity for the company while at the same time the core business is exceeding expectations," Hocevar said. "We believe this is a game-changing acquisition for PolyOne, which strengthens its global leadership in color/additive masterbatches with significant opportunities to create value beyond hard synergies via top-line synergies and innovation."

Plastics M&A veteran Bill Ridenour said in an interview with Plastics News that the PolyOne-Clariant deal is the best acquisition that PolyOne has made since its 2000 formation from the merger of Geon Corp. and M.A. Hanna Co.

"This acquisition makes PolyOne the overwhelming leader in specialty masterbatches in the world," he said. "No one can touch them."

PolyOne in part is funding the Clariant deal with proceeds from the $775 million all-cash sale of its Performance Products and Solutions business. That business was sold in August to private equity firm SK Capital Partners of New York. PP&S included a major PVC compounding business and had annual sales of around $700 million.

Ridenour, president of Polymer Transaction Advisors in Foxfire, N.C., said that PVC "had been a detractor" for PolyOne, whereas the Clariant unit "will be an enhancer with long-term value."

The PP&S business included Geon-brand PVC compounds, which were one of PolyOne's oldest legacy businesses. The materials first were made by rubber supplier B.F. Goodrich, which launched production of PVC resin and related compounds and end products in the 1920s before it began selling the materials to outside customers in the 1940s.

The PolyOne-Clariant deal includes the sale of Clariant's global masterbatches business, with $1.1 billion in annual sales, and a separate agreement to sell the masterbatches business in India for $60 million. Major markets served by the Clariant business include consumer, packaging and healthcare.

With the Clariant operations, PolyOne will add 46 manufacturing sites and technology centers in 29 countries and about 3,600 employees. They will be added to PolyOne's Color, Additives and Inks segment. Ridenour said it's not likely that many of those sites will be closed, since customers value fast service and production availability.

Patterson noted that PolyOne will continue to seek out additional acquisitions in its composites operations. Company officials declined to comment further on the Clariant deal until it closes.

For Clariant, the sale fits its recent strategy of streamlining the firm's portfolio to concentrate on three core business areas of Care Chemicals, Catalysis and Natural Resources. As part of that strategy, Clariant sold its health packaging unit to New York-based private equity firm Arsenal Capital Partners for $312 million last year.

Clariant also expects to divest its noncore pigments business in 2020. The masterbatches unit was almost sold to Sabic in July, but negotiations fell apart as the two sides failed to reach agreement over the creation of a stand-alone specialties business that would have combined Clariant's additive and masterbatch business with parts of Sabic's engineering resins business.

Wall Street reaction to the PolyOne-Clariant deal has been positive, sending PolyOne's per-share stock price up almost 11 percent to just under $36 on the day the deal was announced. The price was at $35.65 in early trading Jan. 14.