Eastman Closes Solutia Buyout - Analyst Blog

Eastman Chemical Company (EMN) has wrapped up its takeover of Missouri-based chemical company Solutia Inc. (SOA) following the approval of the deal by Solutia's shareholders and satisfaction of all regulatory and other conditions. With the deal closure, Solutia has now become a wholly owned subsidiary of the company.

Pursuant to the terms of the cash and stock deal worth roughly $4.8 billion (including assumption of Solutia’s debt), Solutia stockholders will receive $22.00 in cash and 0.12 shares of Eastman common stock for each Solutia share. Eastman issued 14,686,067 shares to Solutia shareholders in connection with the acquisition. The company financed the cash portion of the purchase consideration with cash on hand and debt.

Solutia, a global leader in performance materials and specialty chemicals, registered around 30% of sales in 2011 from Asia-Pacific. Eastman believes that the takeover will help it expand its foothold in emerging markets including China. The company expects the transaction to immediately add to its earnings excluding acquisition related expenses.

Annual cost synergies are expected to be roughly $100 million by 2013. Moreover, Eastman expects to realize significant tax benefits from the acquisition. It also recognizes the potential for meaningful revenue synergies by leveraging technology and business capabilities and overlapping end-markets, particularly in automotive and architecture, of both companies.

With the completion of the Solutia deal, Eastman has realigned its reporting segments. The company will report its third-quarter 2012 results under the new structure which has five reporting segments, namely, Additives and Functional Products, Adhesives and Plasticizers, Advanced Materials, Fibers, and Specialty Fluids and Intermediates. Eastman has also announced certain changes in executive leadership positions in conjunction with the restructuring of its reporting segments.  

Eastman's diversified chemical portfolio, along with its integrated and diverse downstream businesses, is driving earnings. The company benefits from business restructuring, increased capacity additions and cost-cutting measures. It has sold unprofitable units and closed down the poorly performing ones.

With the completion of the Solutia acquisition, Eastman now employs roughly 13,500 people across the globe. The acquisition should significantly accelerate the company’s growth efforts and offer lucrative opportunities in Asia Pacific. Eastman expects compound annual growth rate in Asia Pacific to approach 10% over the next several years.

Eastman, which competes with The Dow Chemical Company (DOW) and E. I. du Pont de Nemours and Company (DD), holds a short-term Zacks #2 Rank (Buy). We currently have a long-term Outperform recommendation on the stock.

DU PONT (EI) DE (DD): Free Stock Analysis Report

DOW CHEMICAL (DOW): Free Stock Analysis Report

EASTMAN CHEM CO (EMN): Free Stock Analysis Report

SOLUTIA INC (SOA): Free Stock Analysis Report

To read this article on Zacks.com click here.

Zacks Investment Research