Eastman Chemical (EMN) Buying Taminco in $2.8 Billion Deal

Chemical maker Eastman Chemical (EMN) has agreed to buy specialty chemical company Taminco Corporation (TAM) in a deal worth $2.8 billion, including $1 billion of net assumed debt. Taminco is a top producer of ‘Alkylamines’ – organic compounds used to make products for a host of end-use markets including agriculture, animal nutrition, water treatment and personal and home care.

Under the deal terms, shareholders of Taminco will get $26.00 in cash for each share of Taminco common stock. The buyout, which has been cleared by the boards of both companies, is subject to regulatory clearances and specific conditions, including a 30-day "go shop" period in which Taminco may seek alternative acquisition proposals.

Investment firm Apollo Global Management, which holds a majority stake in Taminco, has agreed to approve the offer from Eastman Chemical. The deal is also subject to written approval of a majority of Taminco’s shareholders and other closing conditions.

Eastman Chemical plans to finance the acquisition, which is expected to consummate by end-2014, with available cash and new debt. Citigroup (C) is acting as financial advisor to the company on the deal while Morgan Stanley (MS) is serving as financial advisor to Taminco.

Eastman Chemical’s shares rose roughly 2% during trading hours following the news last Thursday. But the stock pulled back to close the day at $82.34, losing around 1.5%. Taminco’s shares gained around 9.8% to close at $26.21, after climbing as much as 12% during the trading session on that day.

The acquisition is a strategic fit with Eastman Chemical’s focus on boosting growth globally. It will fortify the company’s foothold in attractive niche end-markets including food, feed and agriculture where Taminco has a strong presence. The acquisition will also offer compelling opportunities to boost growth in additional markets such as personal care, coatings, and oil and gas that are gaining from megatrends including a rising population, demand for high-performance products and energy efficiency

Moreover, the Taminco acquisition will add Alkylamines to Eastman Chemical’s portfolio. Eastman Chemical also expects to capitalize on the common business model to create fresh growth opportunities.

The acquisition will also offer attractive cost and revenue synergy opportunities. Overall synergies have been estimated to be around 5% of Taminco’s sales (of $1.2 billion) for 2013, most of which is expected to be achieved over two years following the acquisition.

Eastman Chemical sees free cash flow of roughly $1.5 billion and unlevered return on capital between 12% and 15% in the two years following the takeover. The acquisition is also expected to add more than 35 cents and 60 cents, respectively, to the company’s earnings per share in 2015 and 2016, respectively, barring acquisition-related costs and charges.

Eastman Chemical is a Zacks Rank #3 (Hold) stock.