Kraton Performance Polymers (Houston) has entered into a definitive agreement to acquire all of the capital stock of privately held Arizona Chemical Holdings (Jacksonville, FL) for a cash purchase price of $1.37 billion, Kraton announced today. The $1.37- billion base purchase price is subject to adjustment for cash and indebtedness at closing, as well as an adjustment for working capital and other items. Kraton will finance the purchase through debt facilities that have been committed by Credit Suisse Securities (New York), Nomura Securities International (New York), and Deutsche Bank Securities (New York). The seller of Arizona Chemical is AZC Holding Co., which is principally owned by investment funds managed by American Securities (New York).
Following the acquisition, Kraton’s long-term debt is expected to be approximately $1.78 billion including about $1.35 billion of “covenant-lite” term loans, with the balance comprised of senior unsecured notes, the company says. The acquisition is subject to regulatory and other customary approvals and conditions, and it is currently expected to close in late 2015 or early 2016.
“[Kraton] will retain adequate liquidity through a $250-million, asset-based revolving credit facility, which we expect to be largely undrawn,” says Stephen Tremblay, executive v.p. and CFO of Kraton. “We expect the strong free cash flow profile of both Kraton and Arizona Chemical will allow the combined company to rapidly de-lever from net leverage at closing of approximately 4.6 times to approximately 3.0 times by year-end 2017.”
Arizona Chemical manufactures performance products and specialty chemicals derived from non-hydrocarbon, renewable raw materials. Arizona Chemical says its adjusted Ebitda margins have been in excess of 20% over the past five years. The company has a stable and attractive margin profile, with an attractive cash flow profile, according to Kevin Fogarty, Kraton president and CEO.
“Our stockholders will benefit from identified pretax synergies of $65 million, which we expect to achieve by 2018. On a combined basis we expect to generate free cash-flow of more than $450 million over the first three years of combined operations, which will be available for debt reduction and allocation to stockholders,” Fogarty says. “This acquisition will extend Kraton’s technology and market diversification, while substantially increasing profitability and free cash flow, creating a more robust platform for growth and value creation for our stockholders.”
Arizona Chemical’s end-use market exposure complements that of Kraton, particularly in markets such as adhesives, roads and construction, coatings, and oilfield chemicals.
“The acquisition of Arizona Chemical is consistent with our stated strategy, and it creates new opportunities to deepen our customer relationships by expanding Kraton’s presence in our core markets, where more than 50% of Arizona Chemical’s sales are directed,” Fogarty adds. “In addition, given the renewable nature of Arizona Chemical’s product and technology offerings, the complementary growth we foresee can be accomplished while reducing our overall exposure to hydrocarbon-based feedstocks.”
Financial advisors for Kraton are Lazard (New York), J.P. Morgan Securities (New York), and Nomura Securities International, and legal advisors for Kraton are Baker Botts (Houston) and Cleary Gottlieb Steen & Hamilton (New York).
Financial advisors for the sellers are Credit Suisse (Zurich) and Morgan Stanley (New York), and the legal advisor is Weil, Gotshal & Manges (New York).
By Francinia Protti-Alvarez
Source: Chemical Week
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