Kraton’s US$1 bn acquisition of Arizona; to enter specialities/renewable market

US-based Kraton Performance Polymers, a producer of styrenic block copolymers or SBCs, is acquiring all the capital stock of privately held Arizona Chemical Holdings Corporation for a cash purchase price of US$1.37 billion. Arizona Chemical is a producer of speciality chemicals derived from non-hydrocarbon, renewable raw materials. Arizona Chemical is being sold by AZC Holding Company, which is principally owned by investment funds managed by American Securities.

Arizona Chemical's end use market exposure is highly complementary with that of Kraton, particularly in markets such as adhesives, roads and construction, coatings and oilfield chemicals, says the firm.

"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/CEO. "Our stockholders will benefit from identified pre-tax synergies of US$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 US$450 million over the first three years of combined operations, which will be available for debt reduction and allocation to stockholders."

Kraton says the acquisition of Arizona Chemical is consistent with its stated strategy, and it expands Kraton's presence in its core markets, where more than 50% of Arizona Chemical's sales are directed. "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.

The US$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), Nomura Securities International, and Deutsche Bank Securities.

Last year, Kraton’s planned merger with Taiwanese petrochemicals firm LCY Chemical Corp fizzled out due to the decline in operating results for LCY's SBC business in the first quarter of 2014 - See more at: http://www.plasticsandrubberasia.com/aug2014/company7.html

Kraton has plants in five locations globally and had sales of more than US$1.2 billion last year.