Dallas-based chemical company Celanese Corp. announced Feb. 18 it was buying a majority of the mobility and materials, or M&M, business of DuPont for $11 billion.
The M&M unit is a top global producer of engineering thermoplastics and elastomers supplying the automotive, electrical and electronics, consumer goods and industrial industries, Celanese said. The assets include specialty materials with global leadership positions in nylons, specialty nylons, polyesters and elastomers.
The business represented around $3.5 billion of net sales and $800 million in operating EBITDA last year and the gross cash proceeds deliver an enterprise value multiple of 14 times 2021 operating EBITDA, according to DuPont.
The transaction must clear regulators and is expected to close around the end of this year.
Celanese’s in-house counsel included Lynne Puckett, general counsel; Adam Shulman and Mike Sullivan, deputy counsel; John King, associate counsel; Rebecca Stark, chief counsel; and Adam Santosuosso, deputy counsel.
Before joining Celanese in 2019, Puckett was previously general counsel at Colfax Corp. and a partner at Hogan Lovells. Before entering the practice of law‚ she worked for the U.S. Central Intelligence Agency and a major U.S. defense contractor (for more on Puckett, click here).
Kirkland & Ellis advised Celanese as principal legal counsel. The team was led by corporate partners David Feirstein, Daniel Wolf and Romain Dambre and associate Alexandra Gallogly out of New York but included corporate partner Emily Lichtenheld in Austin.
Stephanie Gase, partner at Leader & Berkon in Dallas, advised Celanese on environmental issues. Baker Botts attorneys also assisted from Brussels.
Celanese used BofA Securities as financial advisor.
Skadden, Arps, Slate, Meagher & Flom counseled DuPont led by a team out of Washington, D.C., with no attorneys in Texas. Goldman Sachs & Co. was its financial advisor.
DuPont is separately selling its Delrin acetal homopolymer unit, which was included as part of the strategic review process the company announced on Nov. 2. That business represents $550 million of net sales and $180 million in operating EBITDA last year and continues to attract substantial interest, DuPont said.
DuPont intends on using the net proceeds from the divested M&M businesses to pay for the previously announced acquisition of Rogers Corp., to fund other M&A opportunities and to continue share repurchases.
The acquisition is expected to be fully financed with committed debt at the time of closing and expansion of free cash flow; deleveraging is anticipated to support a reduction of total debt to below 3 times EBITDA within two years of closing the transaction, Celanese said.
Within the first four years following the close, Celanese expects to achieve run-rate synergies of about $450 million as a result of the complementary fit of the businesses. The acquisition is expected to be immediately accretive to adjusted earnings per share with anticipated accretion of $4 or more per share once full synergies are achieved by 2026.
Lori Ryerkerk, chairman and CEO of Celanese, said in a statement the acquisition of the M&M business is an important strategic step forward and establishes Celanese as the preeminent global specialty materials company.
“For nearly a decade, we have implemented, enhanced and increasingly extended the engineered materials (“EM”) commercial model to generate shareholder value,” she said. “M&M will be a high-quality addition to EM and will unlock significant opportunities to generate further customer and shareholder value.”
Matthew Blair, who follows Celanese for TPH, said it’s a perfect fit with the company’s engineered materials segment, as they are direct competitors but M&M has more Asia exposure; and there are benefits on the feedstock side, including M&M’s acetic acid and methanol, which Celanese produces in its commodity business lines.
The deal also has appealing exposure to high-growth markets such as fuel cell and battery powered electric vehicles through its Zytel brand; and a “quite appealing” initial valuation, because if Celanese sold the business, TPH would expect a higher multiple than 12.2 times (“probably closer to 14 to 16 times”).
The main risks to the deal, according to Blair, are synergy capture and increased debt.