Chemical industry mergers and acquisitions market to see distressed assets for sale
PLAY DEFENSE
During the downturn, defensive mergers may also arise, as companies seek combinations to cut costs and improve competitiveness.
"I foresee companies coming to the table to discuss mergers or joint ventures out of necessity," says Oppenheimer's Wilding. "It's almost a life or death kind of thing - that we should put these businesses together and figure out a way to take out costs. Where up until last year, mergers were about driving top-line and earnings growth, it's now going to be about surviving and cutting costs."
Valence's Zachariades sees more joint ventures, PIPEs (private investment in public equity) and stock-for-stock deals going forward. "There are a lot of public chemical companies that are undersized, and I think you'll see players combining their resources in this tough environment in order to better position themselves for the eventual upturn and perhaps even make some consolidation moves," he says. "You will also see private equity firms bolstering balance sheets by making significant minority investments in public companies."
"There are significantly undervalued publicly-traded chemical companies now, and so if a board of a company being targeted might be more likely to approve a transaction that has a share component, realizing that the shares they're getting are also likely to be as undervalued as their company," says Scott-Macon.
ASIA AND MIDDLE EAST BUYERS
The chemical M&A market has shifted in recent years more towards Asia, the Middle East and Latin America versus the traditional grounds of North America and Europe.
In 2008, Asia and the Rest of the World category took the lead with 38% of the total number of chemical deals, compared to 35% in Europe and 27% in the US, according to Young & Partners.
"Up until four to five years ago, companies in Asia and the Middle East were building plants rather than buying companies," says Young. "M&A happens when industries reach a certain stage of maturity. I expect more deals in these regions."
Houlihan's Diaz sees more buyers from Asia and the Middle East coming to the table to look for assets in the US and Europe.
"If anyone still has cash in the world, those folks are sitting in Asia and the Middle East," says Diaz. "We're going to see Japanese companies becoming more aggressive - not only in pursuing their traditional joint ventures, but also full-on M&As as well."
Last November, Japan's Mitsubishi Rayon bought UK-based Lucite International for $1.6bn - the first large acquisition of a Western chemical company by a Japanese firm in memory.
CHEMTURA BUSINESSES ON THE BLOCK
US specialty chemical producer Chemtura has put its crop-protection and petroleum-additive businesses on the selling block, according to sources in the financial community.
"Chemtura's ag business is being shopped by Merrill Lynch, and petroleum additives by Citigroup," a source says. "It's something of a race, as the company is looking to have at least one deal soon. But if they get good prices for both assets they might sell both."
Chemtura has $370m (€285m) in debt maturing on July 15, and has been hit by investor concerns about bankruptcy, sending its stock price to around 50 cents, from a 52-week high of $8.81.
The sale of the crop-protection business could yield Chemtura $700m-1bn, sources say.
Through the first three quarters of 2008, Chemtura's crop-protection segment posted a 58% gain in operating profits to $63m on 17% higher sales of $306m.
Potential buyers include agricultural-chemical players such as Switzerland-based Syngenta, US-based FMC, Japan's Mitsui Chemicals, Israel's Makeshtim Agan and Austalia's Nufarm, sources say.
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