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Global Game Changer: OMNOVA to Buy Eliokem

Monday, September 27, 2010

OMNOVA Solutions Inc. will acquire specialty chemicals manufacturer Eliokem International, transforming OMNOVA into a highly diversified $1 billion company with a significant global Performance Chemicals segment.

Under the proposed transaction, OMNOVA will pay about $300 million for Eliokem. OMNOVA will also raise $425 million in new long-term debt to fund the transaction and to repay all existing debt for both companies.

The acquisition will change the face of OMNOVA, which now manufactures chemicals but is perhaps best known for its production of decorative and functional surfaces, including wallcoverings. Perhaps most important, the deal will provide OMNOVA with chemical manufacturing assets outside the United States.

OMNOVA announced that it had made an agreement with AXA Private Equity, granting OMNOVA a period of exclusivity to make the acquisition. The sale, subject to customary regulatory, financial and internal approvals, is expected to be completed by the end of 2010.

Eliokem Portfolio

Based in Villejust, France, Eliokem is a worldwide producer of specialty polymers and chemicals, including coating resins, elastomeric modifiers, antioxidants, rubber reinforcing resins, oil and gas drilling chemicals, and latices for specialty applications.

Eliokem has about 630 people worldwide and manufacturing sites in China, India, France and the United States. The company also has regional sales offices in the U.S., Singapore, Shanghai and Mumbai.

OMNOVA plans to integrate Eliokem with its Performance Chemicals segment, a business that has significantly strengthened its competitive position and financial performance in recent years. 

"This acquisition will transform OMNOVA Solutions into a much larger, more diverse specialty chemical and functional surfaces company with significantly enhanced global capability," said OMNOVA CEO and chairman Kevin McMullen.  "It is an excellent fit with OMNOVA's strategy to grow in existing markets, penetrate new adjacent markets and globalize our company."

Strategic Benefits

OMNOVA says the acquisition offers “significant strategic benefits”:

• Globalization:  More than 40% of Eliokem’s sales are in emerging markets. Its presence in Asia will further OMNOVA's goal of increasing its specialty chemicals platform in the region. OMNOVA’s Performance Chemicals sales for the 12 months preceding May 2010 were about $15 million in Asia; about $30 million in Europe; and about $466 million overall. Eliokem's manufacturing site in Le Havre, France, is particularly “well suited to enable improved growth of high-margin specialty chemicals,” OMNOVA said.

• New adjacent markets:   Both companies have strong capabilities in polymer development and manufacturing.  Eliokem's business will add complementary technologies and applications to OMNOVA's specialty chemicals portfolio, which now primarily focuses on styrene butadiene (SB)-based latices.

• Cost savings from economies and synergies in manufacturing, logistics, purchasing and SG&A.

• Higher-growth market segments and applications, and improved access to the fastest-growing regions of the world.

Chemicals Segment Boom

OMNOVA's Performance Chemicals business segment has provided strong earnings growth, contributing solid double-digit operating profit returns over the last eight quarters.

"Thanks to excellent work by our business and technical support teams in Europe and Asia, OMNOVA's chemicals business has continued to grow globally despite the fact that we have had no company-owned chemical manufacturing assets outside the United States," McMullen said.

"The acquisition of Eliokem will allow us to build on this momentum quickly and significantly, and demonstrates our clear commitment to meet the needs of our customers on a worldwide basis." 

The companies’ combined assets will provide regional research laboratories in North America, Europe, India and China. The expanded reach will also mean new chemistries for OMNOVA’s portfolio, the company said.

"The Eliokem product lines will deepen our technology portfolios in markets we currently serve, such as oil field and specialty latices, and will provide exciting growth opportunities in new, but related markets with brands that are already well known and respected," said Jim Hohman, president of OMNOVA's Performance Chemicals business segment.

The combination of the two companies will create a chemicals business approaching $750 million in annual sales, OMNOVA said.

Upon completion of the transaction, OMNOVA Solutions (including its Decorative Products segment) will become a company with more than $1 billion in sales—about 40% of it outside the United States—with Adjusted EBITDA of about $129 million.