February 15, 2018 / 1:40 PM / 10 days ago

CORRECTED-UPDATE 2-LyondellBasell doubles plastics business with $1.24 bln Schulman deal

(Corrects to add dropped word “billion” in headline)

* LyondellBasell to cut reliance on automotive sector

* Deal boosts exposure to packaging, electronics markets

* Schulman shares jump 11 pct topping offer of $42/shr

* Deal valued at $2.25 bln, including Schulman’s debt

By Ahmed Farhatha

Feb 15 (Reuters) - Chemicals maker LyondellBasell Industries NV said Thursday it will buy smaller rival A. Schulman Inc for $1.24 billion, doubling the size of its plastics business and moving into the packaging, electronics and building markets.

LyondellBasell’s plastics business currently gets about 90 percent of its revenue from the automotive industry and the all-cash deal will lower that proportion to just over 50 percent, the company said.

The rest of the revenue will come from plastic compounds – blending molten plastic with additives – used to make products such as headphones, mobile chargers, PVC pipes, water bottles and food containers among others.

The plastics compounding industry has grown faster-than-expected over the past decade, with improving margins, while not requiring much capital, analysts and company executives said.

Shares of A. Schulman surged 11 percent to $42.93 in morning trading, compared with the offer price of $42 per share. LyondellBasell’s shares fell 2 percent to $109.65.

The deal will also marginally boost LyondellBasell’s exposure to the agricultural sector, which has been the focus of recent mega-deals among chemicals makers.

Dow Chemical and DuPont completed their $130 billion merger last year to form DowDuPont, while ChemChina bought Swiss seeds group Syngenta for $43 billion.

A combined LyondellBasell-A. Schulman had $4.6 billion in revenue and EBITDA margins of 9.5 percent over the last 12 months, with a majority of revenue coming from A. Schulman and the bigger margin boost from LyondellBasell, the companies said.

The combined company is expected to hit $150 million in run-rate cost savings within two years. The deal will add to earnings within the first full year after closing, expected in the second half of 2018, LyondellBasell said.

A. Schulman shareholders will also get one contingent value right per share that will allow them to get certain net proceeds recovered, if any, from ongoing litigation and government probes related to Schulman’s Citadel and Lucent acquisitions.

Including A. Schulman’s existing debt, the deal is valued at $2.25 billion, the companies said.

J.P. Morgan and Dyal Co are LyondellBasell’s financial advisers and Citigroup is advising A. Schulman. Shearman & Sterling LLP is LyondellBasell’s legal counsel, and Skadden, Arps, Slate, Meagher & Flom LLP is advising A. Schulman. (Reporting by Ahmed Farhatha in Bengaluru; Editing by Shailesh Kuber and Savio D‘Souza)

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