KINGSPORT, Tennessee (
) -- After
(EMN - Get Report)
announced a $3.4 billion acquisition of specialty plastics and chemicals maker
, 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
$9.2 billion acquisition on
$4.7 billion purchase of fertilizer producer
Meanwhile, ambitious hostile offers like
Air Products & Chemicals
$7.5 billion offer for
$3.3 billion offer for
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
signals continued consolidation within the sector.
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.