Private equity, strategic buyers, and chemical giants
We jumped the gun recently when we announced the likely acquisition of US-based specialty chemicals company Huntsman by Dutch-based Basell International Holdings. Basell was outbid by US-based Apollo Management LP, which has struck a deal with a total value $10.6 billion. We hesitate to say it is a done deal until the actual keys are handed over, but it looks to be over.
Apollo Management is a private equity group, and it plans to integrate Huntsman with its Hexion specialty chemicals subsidiary. This represents a rather new trend in private equity, as explained in a Wall Street Journal article ("Why Apollo Was So Keen To Acquire Huntsman," 7/13/07)
Apollo's strategy in the Huntsman deal departs from the buy-and-flip approach widely used by private-equity firms in the past few years. Apollo is buying Huntsman through its Hexion Specialty Chemicals Inc. unit, formed in 2005 by combining four separately bought units. Since then, Apollo has been buying chemical businesses and incorporating them into Hexion.
The two companies have similar products. Huntsman is the leader in resin adhesives, and a major player in dyes, pigments, and polyurethane. Hexion is the world leader in forest-product, phenolic, and epoxy resins, resins used for inks and foundries, and in formaldehyde.
Hexion was put together in 2005 by Apollo Management by combing three diverse pieces: Borden Chemical, Inc. (which had previously acquired Bakelite AG), Resolution Performance Products LLC, and Resolution Specialty Materials. In its short life it has acquired the coatings and adhesives business of France's Rhodia Group, the wax business of US-based Rohm and Haas, the resins and adhesives business of Australia-based Orica Limited, the resins and formaldehyde business of Germany's ARKEMA GmbH. the ink and adhesive resins business of Dutch-based Akzo Nobel.
But that doesn't preclude an eventual spin-off, in fact, according to the Financial Times ("Hexion wins bidding war for Huntsman," 7/12/07). "The private equity group, which is pursuing its own flotation, had sought an IPO of its chemicals assets last year before dropping the plan because of unfavourable market conditions."
The deal also illustrates the increasing valuations in the chemicals industry, and the bidding wars no ongoing. Hexion in fact had offered to buy Huntsman earlier for a lower price
In this case, we have a private equity company acting as a strategic buyer, while it beat out Basell, which owned by US-based Access Indutries, a privately held holding company owned by investor Len Blavatnik. The borders between private and public, between strategic and investment buying, are getting very blurry.
And, as the world always turns, Basell seems likely to acquire another company; its parent company has already made a move to buy a minority state in US chemical firm Lyondell, (a maker of ethylene and propylene) and some see that move as a precursor to a buyout offer.
