Chemical manufacturer Huntsman Corp. is aiming to create a $3 billion pigments business with its proposed $1.1 billion deal to buy titanium dioxide and other assets from a New Jersey-based company.
The Woodlands-based Huntsman announced the deal to buy the Rockwood Holdings assets on Tuesday and said it plans to send its combined pigments business to public markets two years after the deal closes.
The deal, expected to close in the first half of 2014, would make Huntsman the second-largest maker of titanium dioxide and inorganic color pigments in the world, used in paint, coatings and other products. Rockwood’s assets are used in products such as plastics, cosmetics and pharmaceuticals.
“With this combination, we will be better positioned to serve customers through a broader product range,” said Peter Huntsman, president and CEO of The Woodlands-based company, in a written statement. “We anticipate (titanium dioxide) demand will continue to recover in the coming quarters.”
It’s a good time to be a buyer in the chemicals industry, as the sector emerges from a trough in production and profit. A sharp rise in prices during the past two years sent customers away while chemical companies built too much inventory and watched margins declined, said Hassan Ahmed, an analyst at Alembic Global Advisors.
But now things are looking up, and Huntsman’s estimate on the titanium dioxide assets’ earnings — $200 million in 2014 — is pretty reasonable, Ahmed said. What’s more, the company got the assets at an attractive price, expecting to extract $130 million in annual cost savings for the deal, he added.
That gets Huntsman closer to its goal of reducing debt levels by 2015, and shareholders should expect a 60-cent annual per share earnings boost in 2014, the company said.
The company’s debt currently sits above industry norms at about 3.5 times its earnings before interest, taxes, depreciation and amortization, but Huntsman could bundle its new debt into the pigments-assets spin off when it goes public, Ahmed said.
“There’s a case to be made that they’re not leveraging up for this,” he said.
Huntsman’s stock edged up 1.8 percent to $19.48 per share in early trading Tuesday.