Chemicals sector comment – November 2010

Date

LyondellBasell has finally shrugged off three years of restructuring, as well as numerous overtures from Indian petrochemical group Reliance Industries, with a return to the a full listing on the New York Stock Exchange.

LyondellBasell’s largest shareholder is now private equity firm Apollo Management which owns a 29.2% stake in the group, while previous owner Access Industries retains a 9.9% stake.

Chemtura is following suit with a rights offering as part of its emergence from bankruptcy proceedings and thereby heralding the end of a difficult period for many large chemicals groups. Earlier this year German chemicals distributor Brenntag and US elastomers producer Kraton Performance Polymers achieved successful initial public offerings (IPOs).

However, the IPO route is proving more difficult than these transactions suggest. LyondellBasell’s owner Apollo is itself in the process of merging two other chemicals investments, Hexion Specialty Chemicals and Momentive Performance Materials, rather than seeking stock market listings for the two groups. Furthermore, the likes of Taminco NV, the Belgian amine producers, and Univar Inc, the chemicals distributors, cancelled their IPOs in favour of alternative solutions. US private equity firms CVC Capital Partners controls both groups and recently agreed a sale of a 42.5% stake in Univar to US private equity firm Clayton, Dubilier & Rice, whilst in the case of Taminco it is planning a number of bolt-on acquisitions with a view to an IPO at a later date.

In a further notable case this month, US private equity firm Rhône Capital has sold its controlling interest in US pine-based chemicals manufacturer Arizona Chemical to American Securities, another US private equity firm. This transaction exemplifies the challenges facing private equity firms that raised funds between 2004 and 2006. Many of these funds are nearing the end of their investment cycles and are needing to provide returns to their investors.

As a result, many private equity firms are deciding to either move these investments to more recent funds or alternatively sell the investments to other private equity firms, often retaining a minority stake in order to benefit from further value enhancement in the future. In the case of Arizona Chemical, Rhône Capital and the company’s management team have retained a 25% interest in the company. Interestingly, Arizona Chemical has not cancelled its initial public offering, signalling that new owner American Securities may wish to proceed with the offering as market sentiment improves.

Deals

American Securities has acquired a majority stake in Arizona Chemical Co, a US manufacturer of pine chemicals. Arizona Chemical’s natural pine-based materials are used in adhesives, coatings, inks, mining, oilfield, personal care and rubber applications.

PPG Industries Inc has acquired Bairun Ltd, a Chinese manufacturer of packaging coatings. The acquisition will enhance PPG’s presence in the Asian market through the addition of Bairun’s expertise in the monobloc aerosol and tube (MAT) and lug cap, crown and general line (LCG) segments which complement PPG’s strength in the food and beverage can sector.

Alcea Industries Srl has acquired BASF SE’s coatings production plant in Burago Molgora, Italy. The facility is a manufacturer of anodic, electro-disposition coatings for automotive paints, heating equipment, home appliances and general industrial applications. The transaction also includes a distribution contract for cathodic technology and a license agreement relating to liquid paints for automotive supplier metal and commercial transport.

Univar Inc has acquired Basic Chemical Solutions LLC (BCS) a US distributor and trader of commodity chemicals. BCS bulk and mini-bulk distribution services are focused on inorganic mineral acids and bases including bleach, caustic soda and sulfuric and hydrochloric acid.

Linde Group AG has acquired Ceylon Oxygen Ltd, a Sri Lankan manufacturer of industrial and medical gases. Ceylon Oxygen was previously owned by Actis, an emerging markets private equity firm, that acquired the company from Yara International ASA in September 2006. Linde will use Ceylon Oxygen to reinforce its strong market position in South & East Asia and to accelerate its expansion in the region.

Arakawa Chemical Industries Ltd has acquired Dow Chemical Co‘s 60% stake in their AKRON joint-venture. The German business is a manufacturer of hydrogenated hydrocarbon resins used in hot melt and pressure sensitive adhesives, as well as plastic modifiers for films and plastic moulds.

DSM NV has acquired the Turkish polyester operations of Dyo AS, a subsidiary of Yasar Holding AS. The transaction has been completed by DSM’s Euroresins subsidiary, a pan-European distributor of products for the composites industry.

Alfa Group SA has acquired the PTA and PET resin businesses of Eastman Chemical Co for $600m. The transaction has been completed by the Mexican group’s DAK Americas division which will significantly enhance its presence in the North American PTA and PET markets and expand its presence in the food and beverages and personal care markets in particular.

Hexpol AB has acquired Excel Polymers Inc, a US manufacturer of elastomeric products. Excel Polymers has a broad portfolio of compounded performance additives, polymer materials and value added services for elastomeric materials with eight manufacturing facilities in China, Mexico, the UK and the USA. The $213m transaction will strengthen Hexpol’s position in the polymer compounding market and provide the group with a global footprint. The transaction provides an exit for US private equity firms ACI Capital and Lion Chemical Capital.

Johnson Matthey plc has acquired Intercat Inc, a US supplier of fluid catalytic cracking additives. The $56m transaction will strengthen Johnson Matthey’s Process Technologies division and enhance its position in the growing petroleum refining catalysts sector.

Taminco NV has acquired a 50% stake in Ling Tian (Nanjing) Fine Chemical Ltd from Mitsubishi Gas Chemical Co Ltd. Ling Tian is a manufacturer of methyl amines and derivatives for oil and gas, personal care and water treatment, applications. The acquisition will increase the Belgian group’s global presence and replicate its integrated model that it has adopted in Europe and the USA.

Wacker Chemie AG has acquired the Lucky Silicone business of Henkel KGaA. Lucky Silicone comprises silicone sealants for construction and industrial applications in the South Korean market. The transaction includes the rights to the brand, as well as a production plant in Jincheon.

Sika AG has acquired May National Associates Inc, a US manufacturer of bonding and sealing products. May National’s product portfolio includes a full range of acrylic, hybrid, polyurethane and silicone adhesives and sealants which will reinforce Sika’s silicone sealants offering for construction and industrial applications in North America where the Swiss group already has an established presence in the façades and solar markets in particular.

Caldic BV has acquired Omnichem Ltd, a UK chemicals distributor. Omnichem focuses in particular on the distribution of acids and lyes for applications in the agriculture, detergents and laundry, engineering, leisure, paper, textile and water treatment sectors. The acquisition will complement Caldic’s existing operations in the UK which distribute food ingredients, solvents and speciality chemicals.

RPM International Inc has acquired Park Dis Ticaret AS, a Turkish supplier of construction membranes, sealants and tapes and membranes to the construction markets in Turkey. Park Dis Ticaret’s distribution of high-performance sealants, structural silicones and weatherseals will provide RPM’s Tremco Illbruck division and the group’s Building Solutions Group with a platform in the Turkish market.

Arkema SA has acquired Piezotech SA, a French manufacturer of electro-active fluorinated polymers. Piezotech’s products have high added-value applications in the aerospace, automotive, electronics, robotics and textile sectors and will enhance Arkema’s range of fluorinated copolymers and organic electronic chemicals for energy production and storage.

UGI Corp has acquired the Polish liquefied petroleum gas distribution business of Royal Dutch Shell plc. The transaction, completed by UGI’s Flaga subsidiary, follows the acquisition of BP’s Danish LPG distribution business and Shell’s Hungarian LPG distribution business in recent months.

Dow Corning Corp has acquired a 49% stake in Bécancour Silicon Inc, a subsidiary of Timminco Ltd. Bécancour Silicon is a Canadian manufacturer of silicone metal products for solar applications.

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