Trinseo (NYSE: TSE), a global materials company and manufacturer of plastics, latex binders and synthetic rubber, announced today its entry into a binding agreement with Arkema S.A. (“Arkema”), a leader in specialty chemicals, to acquire Arkema’s polymethyl methacrylates (“PMMA”) and activated methyl methacrylates (“MMA”) businesses (together, referred to herein as the “PMMA business”). PMMA is a transparent and rigid plastic with a wide range of end uses, and is an attractive adjacent chemistry which complements Trinseo’s existing offerings across several end markets including automotive, building & construction, medical and consumer electronics.
“This acquisition will be a catalyst for portfolio transformation toward becoming a higher margin, less cyclical solutions provider,” said Frank Bozich, Trinseo President and Chief Executive Officer. “Arkema’s PMMA business has consistently delivered attractive margins with products serving many of Trinseo’s end markets. We believe this is an excellent first step in our portfolio transformation that is expected to ultimately include the separation of some of our commodity businesses. We look forward to the Arkema PMMA team joining Trinseo and we believe the complementary nature of the transaction should drive growth opportunities for the PMMA business globally.”
The transaction is expected to generate approximately $50 million in annual pretax cost synergies by 2023 and additional revenue synergies by leveraging Trinseo’s market overlap and existing Asia organization to accelerate growth. In addition, it is expected that, as a result of harmonizing global ERP systems, Trinseo will realize an additional $25 million in IT-related productivity savings in its existing businesses. These IT-related savings represent meaningful benefits above the PMMA-related synergies.
Arkema’s PMMA business is a leader in several end market applications including automotive and building & construction, enhancing Trinseo’s existing strong positions in these applications. In addition, the combination of Trinseo’s existing portfolio with the PMMA business will enable greater focus on future growth markets such as Asia, which represents approximately 70% of the global PMMA market.
The PMMA business has high quality products and well-established brand names (such as Plexiglas® in the Americas, Altuglas®, Solarkote® and Oroglas®), a significant amount of technical services and niche applications, strong long-term customer relationships, and targeted growth in its primary market segments through customer intimacy, innovation and technical service. Financially, it has consistently produced high margins and cash flow.
As part of its transformation, Trinseo will maintain a disciplined approach to capital allocation to support growth and drive long-term value. Trinseo is implementing a dividend reduction to $0.08 per share per quarter and suspending its share repurchase program to prioritize leverage reduction and preserve financial flexibility. The transaction is expected to be funded with up to $250 million of existing cash with the remainder from new debt financing. Trinseo expects its net leverage ratio to be in the mid-3x area at transaction close, inclusive of run-rate cost synergies, with targeted deleveraging in the mid-2x area in 2023. Trinseo expects the transaction to close in mid-2021 subject to customary closing conditions and regulatory approvals, including prior consultations with certain of Arkema’s works councils.