Dow Sells Styron to Bain Capital for $1.63 Billion
8:05 PM MDT | July 26, 2013 | Lindsey Bewley
Dow Chemical has agreed to sell its styrenics unit, Styron, to Bain Capital (Boston) for $1.63 billion. The sale is part of the company’s continuing efforts to mend its balance sheet following its $16.3-billion purchase of specialty chemicals maker Rohm and Haas last year.
Under the deal, Dow has an option to receive up to 15% of the equity of Styron as part of the sale consideration. The deal also includes several long-term supply, service and purchase agreements valued at about $400 million, sources say. Dow will supply Styron the materials needed to produce its plastics, sources say. The transaction is expected to close by August, Dow says.
The Styron business reported 2009 sales of about $3.5 billion, and estimated earnings before interest, taxes, depreciation and amortization (EBITDA) of $263 million, analysts say. Styron has more than 40 manufacturing plants globally and approximately 1,900 employees.
“We are committed to further focusing our portfolio by shedding non-strategic assets that can no longer compete for growth resources inside the company, and in the process generating funds for further debt reduction and liberating resources for Dow’s higher growth, higher margin portfolio of technology, market driven businesses,” says Andrew Liveris, Dow chairman and CEO.
The company raised more than $3 billion from asset sales in 2009. The deals included the $1.6 billion sale of Morton Salt, the $204 million sale of its calcium chloride unit, the sale of its interest in a Dutch refinery for $742 million and $660 million from the sale of its stake in Optimal.
Dow placed Styron up for sale in July 2009 (CW, Aug. 3/10, 2009, p. 6). The business includes Dow’s styrene-butadiene latex, styrene-butadiene rubber, polycarbonate, acrylonitrile butadiene styrene/styrene acrylonitrile resins, expandable polystyrene, polystyrene and styrene monomer units. The business represents 35% of Dow’s basic chemicals division. The sale will help Dow move away from commodity chemicals and heightens the company’s concentration in the higher-margin specialty chemical sector.
While the Styron businesses are “strong cash flow generators,” they are non-strategic, Dow says. “We have better businesses in our new portfolio that we need to feed to grow.”
Bain Capital plans to make Styron a stand-alone, privately held chemicals and plastics company. Dow recently asked bidders interested in purchasing Styron to reconfirm their interest, to narrow the field of buyers. Bain was among half a dozen private equity firms that confirmed their interest in the sale.
“We are delighted to embark on a long-term partnership with Dow,” says Steve Zide, managing director at Bain Capital. “We are greatly impressed by the exceptional quality of the Styron business, and look forward to working with our new partners to continue to grow and strengthen Styron’s leadership position.” Bain Capital’s previous chemical sector investments include Brenntag, Innophos, SigmaKalon, Feixiang Chemicals, and Himadri Chemicals.
The transaction values the business at approximately 6.0-6.5 times the company’s estimated 2010 Ebitda of $257 million, excluding working capital and tax adjustments, analysts say. The deal is expected to have minimal impact on Dow’s earnings, provided the company uses the proceeds of that sale to pay down its debt, analysts say.
Dow has said it expects to raise at least $2 billion from asset sales in 2010, of which the Styron operations will represent the largest portion. Dow says it has identified roughly $12 billion of potential divestment options if needed. Dow has set a goal of reaching a net debt-to-total capitalization ratio of 45% in 2010, down from 48% at the end of 2009. The company says it expects fixed cost reductions and cost synergies to achieve a run rate of $2.5 billion/year by year-end and will use excess cash to pay down debt. The company reported long-term debt of roughly $19 billion at year-end 2009.
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