LyondellBasell Industries NV agreed to buy A. Schulman Inc. for $2.25 billion including debt in a deal that expands the chemical giant’s offerings of specialty plastic compounds.
The $42 per share acquisition would double a relatively small part of LyondellBasell’s business that converts commodity resins into materials for auto parts, adding products for packaging, electronics, construction and agriculture markets, the company said in a statement Thursday. The transaction is expected to close in the second half of the year.
Chief Executive Officer Bob Patel is diversifying the company’s offerings by integrating Schulman’s higher-value products with LyondellBasell’s commodity plastics business, one of the world’s largest makers of polyethylene and polypropylene. The deal is the company’s largest since emerging from bankruptcy in 2010.
“What we like about this transaction is that it diversifies our compounding business,” beyond auto parts, Patel said on a conference call to discuss the deal. “It makes us really a full-range compounding company.” Schulman’s end markets are growing about 6% to 7% a year, he said.
Patel, who last year said he could spend as much as $18 billion on acquisitions, said on the call that more deals are possible as part of a “multi-step process.”
Buying Schulman provides a ready outlet for LyondellBasell’s expanding polyethylene production, helping it maintain output levels when plastics demand weakens, Charles Neivert, an analyst at Cowen & Co., said in a note.
Schulman jumped 11% to $42.87 as of 10:45 a.m. in New York. LyondellBasell was down 1% to $110.84.
LyondellBasell has long been focused on commodity products, so “it’s a bit of a surprise” the company is entering new markets for packaging and engineered materials, Hassan Ahmed, an analyst at Alembic Global Advisors in New York, said by phone.
“While LyondellBasell has previously communicated its intent to pursue near-term M&A, we expected the company to focus on commodity chemicals,” James Sheehan, an analyst at Suntrust Robinson Humphrey Inc. said in a note. “The acquisition of Schulman signifies an expanded focus that includes plastics compounding and potentially more specialized engineered materials.”
The combined plastics-compounding business would have had $4.6 billion in sales over the last 12 months and earnings before interest, taxes, depreciation and amortization of $446 million. Overall, LyondellBasell reported EBITDA of $6.53 billion last year on $34.5 billion of revenue.
The tie-up would add to LyondellBasell’s earnings in the first full year after closing, and the company expects to reduce annual costs by $150 million within two years.
LyondellBasell will add 54 manufacturing sites and 5,100 employees to the 18 sites and 1,500 workers currently in its compounding business, according to a company slide presentation.
In addition to the buyout price, Schulman holders also get one contingent value right per share, which could generate certain proceeds depending on the outcome of litigation and government investigations relating to past acquisitions. Schulman agreed to pay a $50 million breakup fee if it terminates the deal.
By Jack Kaskey