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Eastman Buying Solutia

I arrive the office this morning, bright and early, as usual.

“Your Top 50 U.S. chemical company survey will get smaller by one company,” C&EN assistant managing editor, Mike McCoy, said.

“Do you want me to guess?” I said.

“Solutia is one of the firms.”

“That is the company being acquired,” I reply.

“That’s right.”

“PPG is buying them,” I guessed.

“No, but that’s an interesting guess,” Mike says. It was a very good guess.

“Ashland?”

“No, too soon.” Ashland, Mike realized, just bought ISP.

“Eastman!”

“Very good!” Mike exclaimed, very impressed.

Indeed, Eastman is buying Solutia in a $4.7 billion transaction. The relevant details are in my Latest News story here.

I have a few observations:

1) It seems like a nice, square deal for all parties. My calculations put the cash and stock portion of the deal at $3,357 million and the debt at $1,377 million, combining for the ~$4.7 billion price. The cash and stock represent a 13.8x multiple over adjusted earnings of $243 million.

2) Since declaring bankruptcy in 2003, Solutia has honed its business where it has a strong position such as hydraulic fluids and polyvinyl butyral (PVB) interlayers for windshields. The cash cow of the portfolio is the technical specialties business, which generated a 38% EBITDA margin. It makes the hydraulic fluids, heat transfer fluids, and insoluble sulfur, used to vulcanize rubber.

3) Integration? PVB is made by reacting polyvinyl alcohol, which Solutia makes, with n-butyraldehyde. It just so happens that Eastman is America’s largest producer of n-butyraldehyde, which it uses to make oxo derivatives like 2-ethylhexanol.

4) Solutia is an ex-Monsanto business. Sterling, which Eastman acquired last year, is a former Monsanto unit. Spooky? Yes. Coincidence? Probably.

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