Solutia’s global business drew interest of Eastman Chemical
Solutia’s prowess in developing chemicals found in everything from car tires to office windows throughout the globe drew the interest of Eastman Chemical Co. last summer. Now it’s buying the Town and Country-based company in a deal worth $4.7 billion.
Eastman, a chemical manufacturer based in Kingsport, Tenn., is acquiring Solutia for $3.4 billion in cash and stock, and assuming $1.3 billion in debt. The deal is set to close in mid-2012, pending shareholder approval.
Solutia makes specialty films and chemicals for the automotive and architectural industries, and employs 3,400 people worldwide, including 450 locally.
With $2.1 billion in revenue last year, Solutia is one of the largest public companies based in the St. Louis region.
Solutia has two local facilities - the Town and Country headquarters, with 300 employees, and a Sauget manufacturing plant where 150 people work.
A Solutia spokeswoman said there was no information yet on the fate of local workers, though headquarters jobs are often a cost-cutting target in mergers. On Friday, Eastman said the headquarters of the combined companies will be in Kingsport.
Menawhile, the Sauget plant - which makes chemicals for tire manufacturing - runs 24 hours a day, seven days a week.
Sauget Mayor Rich Sauget said he spoke with Solutia employees as recently as last week who were unaware that a sale was in the works.
“They mean a lot to us,” Sauget said of Solutia’s local workforce. “We hope, whoever comes in, that they see an opportunity with Solutia and their properties here.”
Despite the uncertainty, Eastman won’t be leaving the region, Solutia’s chairman, president and CEO Jeffry Quinn predicted.
“I certainly would expect the combined company to have a significant presence in St. Louis for some time,” Quinn said in an interview with the Post-Dispatch. Quinn, who joined Solutia in 2003, will leave the company once the sale finalizes.
In the sale announcement, the companies did not disclose how much Quinn stands to gain when the deal closes. However, Solutia’s most recent proxy statement stated last year that Quinn’s compensation, including cash severance and stock options, would have totalled $21.6 million based on the company’s stock price at the end of 2010.
Under the deal, Solutia shareholders will receive $22 in cash and 0.12 shares of Eastman stock for each share of Solutia that they own. Based on Solutia’s closing price Thursday, Eastman offered a 42 percent premium for Solutia’s stock.
Eastman, which had $7.2 billion in revenue last year, plans to fund the cash portion of the buyout with available cash and debt.
After the early morning announcement, Eastman’s stock soared. Based on Friday’s closing prices, Solutia shareholders will receive cash and stock valued at $28.05 for each Solutia share.
Meanwhile, Solutia’s stock jumped more than 41 percent after the sale was announced, closing Friday at $27.52 a share.
Eastman expects about $100 million in annual cost savings by the end of 2013, as the acquisition is expected to help lower costs and help the company purchase raw materials at lower prices payday loans. The company said the deal will immediately boost earnings.
Global push
The original Monsanto Co. spun off Solutia in 1997 in an effort to focus on drugs and agriculture. Solutia, burdened with heavy debt loads and retirees’ benefits dating before the spin-off, floundered as raw material prices rose and environmental legal costs increased.
In 2003, Solutia filed for Chapter 11 bankruptcy protection. It didn’t emerge out of bankruptcy until 2008.
During the years in bankruptcy, Solutia grew its international reach while divesting underperforming or non-core brands and businesses such as nylon, acrylic fibers and feed ingredients.
In 2003, only 30 percent of Solutia’s revenue came from international sales. Today, that has jumped to 75 percent.
“We’ve really transformed the company into one of the preeminent specialty chemical companies in the world,” Quinn said. “Many of the products we make are expensive to ship, so we built around the world to serve our customers.”
Growth in the company’s technical specialties division, for example, paralleled the development of infrastructure in places such as China. With the new roads, demand for radial tires - which use a chemical made by Solutia - is on the rise.
That global reach drove the Tennessee company’s interests in Solutia, Eastman’s chairman and CEO Jim Rogers said in a conference call with analysts Friday.
“With the addition of Solutia, Eastman will be adding manufacturing capacity in Asia over the next couple of years to meet growth,” Rogers said.
Eastman, which has 10,000 employees globally, was itself a product of a spin-off. The company was spun-off from camera and film maker Kodak in 1994.
In the conference call, Rogers said Eastman began exploring acquisition opportunities last summer.
“Solutia was number one then, and it has stayed number one through this whole process,” he said.
Talks with Solutia’s board began in the fall and intensified in the past 30 days, Quinn said.
The deal came on the same day Solutia announced fourth quarter and full-year financial results. Solutia’s fourth-quarter net income rose 15 percent to $54 million, or 45 cents per share, from $47 million, or 39 cents per share, a year earlier. Revenue increased 8 percent to $526 million.
For the full-year, Solutia earned $262 million, or $2.16 per share. That compares with earnings of $78 million, or 65 cents per share, in the previous year. Annual revenue climbed 8 percent to $2.1 billion.
Tim Logan of the Post-Dispatch and the Associated Press contributed to this report.