Eastman Chemical Company (EMN) announced that it will acquire Sterling Chemicals Inc. (SCHI) for $100 million in cash in order to boost its plasticizer product line. The deal is expected to close in the third quarter of 2011.
The transaction, which includes Sterling's plasticizer and acetic acid manufacturing assets in Texas City, Texas, is expected to be accretive to Eastman's full-year 2012 earnings per share in excess of its cost of capital. The purchase has been approved by the respective boards of both the companies. Regulatory and shareholder approvals are awaited.
Eastman plans to renovate and restart Sterling’s currently idled plasticizer manufacturing facility to produce non-phthalate plasticizers. This additional capacity will enable the company’s performance chemicals and intermediates (PCI) segment to serve the growing market demand for non-phthalate alternatives.
This acquisition supports Eastman’s growth strategy for its plasticizer product line, and will enable it to keep pace with the growing demand for non-phthalate alternatives. The Sterling merger will bring additional capacity online and continue to grow the business.
In April 2011, the company released its results for the first quarter of 2011. Eastman reported first-quarter earnings of $3.04 per share, compared with $1.37 per share, a year earlier and beat the Zacks Consensus estimate of $1.97 per share.
With sales improving across all product lines, revenues climbed 28% year over year to $1.8 billion, driven by higher sales volume and increased selling prices and outpacing the Zacks Consensus estimate of $1.5 billion.
Higher sales volume was attributed primarily to strong end-use demand in packaging, transportation, and other markets and the positive impact of growth initiatives. The increase in selling prices was in response to higher raw material and energy costs.
Eastman Chemical’s diversified chemical portfolio, along with its integrated and diverse downstream businesses, is driving earnings. Eastman benefits from business restructuring and cost-cutting measures. The company has sold unprofitable units and closed down poorly performing ones.
The company, however, faces volatility in raw material and energy costs, higher pension expenses and other growth-related costs.
Eastman battles with large multinational companies such as Celanese Corp. (CE) and The Dow Chemical Co. (DOW) across its major business segments.
Currently, Eastman has a short-term (1 to 3 months) Zacks #1 Rank (Strong Buy) and a long-term (6 months and higher) Outperform recommendation.
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