Houston, Texas-based Kraton Performance Polymers announced last Monday that it has entered into an agreement to acquire privately held Arizona Chemical for a cash purchase price of $1.37 billion. Jacksonville, Florida based-Arizona Chemical produces and sells chemical intermediates into markets that include fuel additives, oilfield chemicals, coatings, metalworking fluids and lubricants.
"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," said Kevin M. Fogarty, Kraton's President and Chief Executive Officer. "Our stockholders will benefit from identified pre-tax synergies of $65 million, which we expect to achieve by 2018. Arizona Chemical has a stable and attractive margin profile, with adjusted EBITDA margins in excess of 20% over the past five years and an attractive cash flow profile. On a combined basis we expect to generate free cash-flow of more than $450 million over the first three years of combined operations, which will be available for debt reduction and allocation to stockholders."
"Kraton and Arizona Chemical are both well-respected, leading providers of high quality products and innovations in their respective specialty markets," said Dan F. Smith, Chairman of Kraton's Board of Directors. "The fact that Kraton and Arizona Chemical have such a highly complementary market focus, coupled with a shared business philosophy fundamentally premised on product differentiation and portfolio shift to drive improved profitability, is what makes this such a compelling combination," added Smith.
"Over the past year we have spoken at length to our employees, our innovation partners, and our stockholders about our three-part strategy. The acquisition of Arizona Chemical is consistent with our stated strategy, and it creates new opportunities to deepen our customer relationships by expanding Kraton's presence in our core markets, where more than 50% of Arizona Chemical's sales are directed," said Fogarty. "In addition, given the renewable nature of Arizona Chemical's product and technology offerings, the complementary growth we foresee can be accomplished while reducing our overall exposure to hydrocarbon-based feedstocks," Fogarty added. "Lastly, I want to compliment Arizona Chemical's leadership team, in particular Kees Verhaar, its President and CEO since 2008. Kees and his team have formulated and executed a highly successful transformation of the company into the market-leading specialty chemical company that it is today. We look forward to working with the team at Arizona Chemical to capitalize on opportunities to further expand Arizona's portfolio into new markets and geographies."
The $1.37 billion base purchase price is subject to adjustment for cash and indebtedness at closing, as well as an adjustment for working capital and other items. Kraton will finance the purchase price through debt facilities that have been committed by Credit Suisse Securities (USA) LLC, Nomura Securities International, Inc., and Deutsche Bank Securities, Inc. The seller of Arizona Chemical is AZC Holding Company, LLC, which is principally owned by investment funds managed by American Securities LLC.
"Following the acquisition, Kraton's long-term debt is expected to be approximately $1.78 billion including approximately $1.35 billion of covenant-lite term loans, with the balance comprised of senior unsecured notes. In addition, we will retain adequate liquidity through a $250 million asset-based revolving credit facility which we expect to be largely undrawn," said Stephen E. Tremblay, Kraton's Executive Vice President and Chief Financial Officer. "We expect the strong free cash flow profile of both Kraton and Arizona Chemical will allow the combined company to rapidly de-lever from net leverage at closing of approximately 4.6 times to approximately 3.0 times by year-end 2017."
The acquisition is subject to regulatory and other customary approvals and conditions and is currently expected to close in late 2015 or early 2016.
Kraton Performance Polymers, Inc., through its operating subsidiary Kraton Polymers LLC and its subsidiaries, is a leading global producer of engineered polymers and one of the world's largest producers of styrenic block copolymers (SBCs), a family of products whose chemistry was pioneered by Kraton 50 years ago. Kraton's polymers are used in a wide range of applications, including adhesives, coatings, consumer and personal care products, sealants and lubricants, and medical, packaging, automotive, paving, roofing and footwear products. The company, offers a diverse range of products to more than 800 customers in over 60 countries worldwide, and is the only SBC producer with manufacturing and service capabilities on four continents. Kraton manufactures products at five plants globally, including its flagship plant in Belpre, Ohio, the most diversified SBC plant in the world, as well as plants in Germany, France, Brazil and Japan. The plant in Japan is operated by an unconsolidated manufacturing joint venture.
Arizona Chemical is a global specialty chemicals company that manufactures and sells high-value performance products derived from pine wood pulping co-products. As the largest global provider in the pine chemicals industry, Arizona Chemical refines and further upgrades two primary feedstocks, crude tall oil and crude sulfate turpentine, into value added specialty products. Arizona Chemical serves a diverse base of over 550 customers in 68 countries around the globe. The company operates a network of nine strategically located manufacturing facilities in North America and Europe, and operates three state-of-the art Science and Technology centers in Almere, The Netherlands, Savannah, Georgia and Shanghai, China.
