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Synthomer to acquire Adhesive Resins business of Eastman Chemical Company for $1 billion

Synthomer plc (“Synthomer” or the “Company“), a global differentiated chemicals company, today announces it has agreed to acquire the Adhesive Resins business (“Adhesive Technologies“) of Eastman Chemical Company (“Eastman“), which develops, manufactures and sells tackifying resins and additives for adhesive products, with a strong focus on attractive end markets such as hygiene, packaging and high-performance tyre additives, for $1 billion in cash (the “Acquisition“).

Strategic Highlights

The Acquisition of Adhesive Technologies will bring significant benefits to Synthomer, including:

·    Well-invested assets with a global leading position in adhesives.

·    Six plants with strong Safety, Health & Environment standards and manufacturing excellence heritage.

·    Increased exposure to attractive end-markets with resilient and GDP+ growth fundamentals.

·    Greater scale and diversity to Synthomer’s portfolio, and further extending the Company’s geographic footprint.

·    Strong R&D track record driving opportunities for further innovation-led growth.

·    Alignment with our sustainability roadmap – large and growing portfolio of sustainable products.

·    Logical and strategic acquisition with attractive synergy potential.

·    Compelling financial metrics with accretive unit gross margins and conservatively financed.

·    Strong management team and talented employee base consisting of approximately 650 people worldwide.

Financial Summary

·    Adhesive Technologies valued at US$1 billion (approximately £728 million), on a cash and debt-free basis, with normal levels of working capital.

·    Acquisition represents an enterprise value multiple for Adhesive Technologies of 10.3x Adhesive Technologies’ June 2021 LTM Adjusted EBITDA before synergies.

·    Attractive post-synergy multiple of 8.3x with target run-rate pre-tax cost synergies of c.US$23 million per annum by the end of the third year following completion of the Acquisition (“Completion“).

·    Acquisition expected to deliver double digit EPS accretion from Year 1.

·    Higher unit gross and EBITDA margins per ton compared to existing Synthomer portfolio.

·    Return on invested capital is expected to exceed its cost of capital in the third full financial year following Completion.

·    Conservatively financed Acquisition with an estimated leverage of approximately 1.6x net debt / EBITDA expected at Completion.

Financing and Expected Timetable

·    Financing of the Acquisition and related fees and expenses from the gross proceeds of an Equity Placing expected to raise approximately £200 million (approximately US$275 million), existing cash and drawing under a new US$300m debt facility.

·    Acquisition constitutes a Class 1 transaction for the purposes of the Listing Rules, and therefore requires the approval of Synthomer shareholders. Accordingly, a General Meeting will be convened to approve the Acquisition and further details, including the notice of the General Meeting, will be set out in a circular that is expected to be sent to shareholders in November 2021 (the “Circular“).

·    In addition, Synthomer shareholders will be asked to approve an increase of the borrowing limit set out in the Articles of Association from £1,500 million to £2,000 million.

·    The Acquisition will also be conditional on various regulatory approvals and customary closing conditions.

·    Assuming satisfaction or waiver of all conditions to the Acquisition, Completion expected to occur in Q1 2022.

Irrevocable undertakings

·    The Directors have irrevocably undertaken to vote or procure that the registered holders vote in favour of the Resolutions in respect of their beneficial holdings and certain non-beneficial holdings for which they have an aggregate interest amounting to 10,117,624 ordinary shares (the “Shares“), representing approximately 2.4% of the existing ordinary share capital of Synthomer as at 27 October 2021 (the “Latest Practicable Date“).

·    Kuala Lumpur Kepong Berhad (“KLK“), which holds 90,677,284 Shares, representing approximately 21.3% of the existing ordinary share capital of Synthomer as at the Latest Practicable Date, has irrevocably undertaken to vote in favour of the Resolutions.

·    In addition, KLK has irrevocably undertaken to subscribe for 9,067,728 new Shares in connection with the Equity Placing, representing their 21.3% interest of Synthomer’s existing ordinary share capital.

Commenting on today’s announcement, Caroline Johnstone, Chair of Synthomer, said:

“This acquisition is another important strategic step for Synthomer. It builds on the significant portfolio and geographic expansion gained from acquiring OMNOVA last year and adds an exciting new platform for growth. Adhesive Technologies’ global positioning, market leading technology with a strong focus on attractive end markets such as hygiene, packaging and high performance tyre additives are highly complementary to our existing business. Together with Synthomer’s incoming CEO, Michael Willome, who has been closely involved and who has fully endorsed this transaction, I look forward to welcoming Adhesive Technologies’ colleagues to the Company and working together to deliver on the exciting potential that the combination of our two businesses undoubtedly brings.”

Commenting on today’s announcement, Calum MacLean, Chief Executive of Synthomer, said:

“Alongside the diversification of our portfolio, end-markets and geographies, our acquisition strategy looks to add new and highly complementary growth opportunities to Synthomer’s global portfolio. Adhesive Technologies delivers on that ambition, giving us a leading position in the growing global adhesives market and extending our portfolio of differentiated products and sustainable solutions. The business is well-invested, with six manufacturing facilities, a highly skilled and experienced workforce and has a compelling R&D track record and strong innovation pipeline which will deliver meaningful revenue growth over the next few years. It is a business that we have long-admired, and I am confident that the combination of Synthomer and Adhesive Technologies will drive meaningful value for all stakeholders in the years ahead.”

YOUR SUPPORT IS CRITICAL TO KEEP PCE ALIVE

$3.00

Source: Synthomer

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