This Day On The Street
Continue to site right-arrow
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
$1 buys you full access to ALL of TheStreet's Subscription Services! Learn More

Eastman Chemical Deal Takes Sector Out of M&A 'Penalty Box'

Stocks in this article: EMNSOAMON

KINGSPORT, Tennessee ( TheStreet) -- After Eastman Chemical (EMN) announced a $3.4 billion acquisition of specialty plastics and chemicals maker Solutia (SOA), the news sent both company's shares soaring. For the chemicals sector, the tie-up may have a larger significance.

Since the financial crisis, there have been few notable U.S. deals outside of Berkshire Hathaway's (BRK.A) $9.2 billion acquisition on Lubrizol, CF Industries' (CF) $4.7 billion purchase of fertilizer producer Terra Industries and Cargill's spinoff of Mosaic (MOS).

Meanwhile, ambitious hostile offers like Air Products & Chemicals (APD) $7.5 billion offer for Airgas (ARG) and Agrium's (AGR) $3.3 billion offer for CF Industries (CF) failed as targets fended off bids at what they called cyclically low and undervalued prices. In 2012, more buyers and sellers may come together on scarce opportunities in the sector as stock prices and balance sheets recover.

"2011 was an unusual year, in that chemical companies that conducted large M&A did not remain in the penalty box for long," writes Jefferies analyst Laurence Alexander, in a note reacting to Eastman Chemicals bid.

Alexander expects that the deal and a Jan. 13 hostile $1.1 billion offer by Westlake Chemical's (WLK) for Georgia Gulf (GGC) signals continued consolidation within the sector.

Albermarle (ALB), Celanese (CE), Cytec (CYT), Huntsman (HUN), OMNOVA Solutions (OMN) and W.R. Grace (GRA) are all potential take-out candidates notes Alexander, with Huntsman and OMNOVA Solutions offering the biggest upside to Jefferies buyout models. Both of those companies saw their shares rise over 5% on news of the deal.

Jefferies expects that U.S companies may cut deals to add hard to get emerging market chemicals growth, while Asian and Middle Eastern giants may look cutting deals to get a greater access to basic material supplies. "We expect consolidation to continue in the sector, with U.S. and European firms looking for scarcity value and market-leading positions, Asian firms looking for technology and Middle Eastern firms looking for vertical integration," writes Alexander.

The move to buy Solutia, which makes aftermarket materials like glass and coatings that are used by automotive and architectural customers, is also expected to diversify the Eastman Chemical's revenue further into emerging markets and boost earnings through cost synergies. Those businesses could also benefit from a continued post-crisis recovery in global auto sales and real estate construction.

Under the deal, Eastman Chemical will pay $27.65 for each Solutia share, a premium of 42% to Solutia's closing price Thursday of $19.51. Solutia shareholders will get $22 in cash from Eastman Chemical and 0.12 of an Eastman share for each of Solutia share, the companies said in a Friday statement. The deal values Solutia at $4.7 billion, when counting its debt.

"The acquisition of Solutia is a significant step in our growth strategy," said Eastman Chemical Chief Executive Jim Rogers in a statement.

On news of the deal, Solutia shares surged nearly 40% to $27.27 in early afternoon trading, while Eastman Chemical shares also rose over 6% to $49.95.

1 of 2

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
DOW 17,810.06 +91.06 0.51%
S&P 500 2,063.50 +10.75 0.52%
NASDAQ 4,712.97 +11.1030 0.24%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs