By Dr. Cameron Chai
Eastman Chemical Company and Solutia together declared that both the companies have entered into an agreement. As per the contract, Eastman will acquire Solutia. Solutia is known for its specialty chemicals and performance materials.
The terms of the agreement stated that for each share of Solutia common stock, Solutia stockholders will receive 0.12 shares of Eastman common stock and $22.00 in cash. The recent closing prices stated that Solutia shareholders will obtain cash and stock amounting to $27.65 per Solutia common share corresponding to a premium of 42 % with a total transaction value of around $4.7 B, inclusive of Solutia’s forecast debt.
Eastman and Solutia share several common platforms such as business capabilities, complementary technologies, a polymer science backbone, similar operating philosophies and an excellent performance culture. This acquisition will promote the expansion of Eastman’s strategy in emerging markets such as Asia Pacific.
With this transaction, Eastman will leverage and improve the earnings without the acquisition-related costs. Following the acquisition of Solutia with the predicted cost synergies, Eastman estimates 2012 EPS to reach $5 without including acquisition-related costs and charges. However, Eastman anticipates 2013 EPS forecast to increase by $6.
The annual cost synergy of Eastman is estimated to be $100M by the end of 2013. The value creation is stimulated by the improved manufacturing and supply chain processes and the reduction of raw material synergies and corporate costs. In addition, Eastman anticipates free cash flow of around $1.0 B through 2013.
The transaction is yet to be approved by Solutia’s shareholders and awaits regulatory approvals and other customary closing conditions. The transaction was however approved by the Boards of Directors of both companies and anticipates accomplishment by mid-2012.