Huntsman Acquires Rockwood Businesses for $1.1B

Chemicals maker Huntsman (NYSE:HUN) reached a deal on Tuesday to scoop up Rockwood’s (NYSE:ROC) titanium dioxide and performance additive businesses for $1.1 billion, setting the stage for an eventual initial public offering of the businesses.

The transaction makes Huntsman the second-largest global producer of Ti02 and inorganic color pigments. The acquired businesses make products used in coatings, construction, concrete, plastics, papers, inks, food, pharmaceuticals and films.

“With this combination we will be better positioned to serve customers through a broader product range including color pigments, functional additives and specialty TiO2 pigments,” Huntsman CEO Peter Huntsman said in a statement.

The $1.1 billion price tag represents a multiple of 5.5 times estimated 2014 adjusted earnings before interest, taxes, depreciation and amortization, or EBITDA.  The businesses generated combined net sales of $1.45 billion in the 2012 calendar year.

Huntsman said it expects to unlock shareholder value through an IPO of its new pigments business within two years of the closing of the Rockwood acquisition.

“We believe this public offering will allow greater investor focus and appreciation for our differentiated businesses.  These remaining divisions continue to enjoy record financial performance and global growth,” Huntsman said.

Huntsman said it sees the transaction immediately adding to its bottom line, boosting annual EPS by 60 cents in 2014. The company also expects to generate $130 million in cost savings.

As part of the deal, which is expected to close in the first half of 2014, Huntsman will assume about $225 million in unfunded pension liabilities.

For Rockwood, the deal was one of four strategic initiatives unveiled earlier this year that the company has now completed, including a 30% dividend hike and $400 million in stock buybacks.

“With the completion of these initiatives, Rockwood has reached a significant milestone in its eight-year history since its IPO in August 2005 and is now uniquely positioned to grow within the specialty chemical sector,” Rockwood CEO Seifi Ghasemi said in a separate statement.

Huntsman said financing conditions are in place to fund the deal, but didn’t disclose details of those conditions.

Wall Street cheered the acquisition, bidding Salt Lake City-based Huntsman 4.91% higher to $20.09 Tuesday morning. Rockwood, which is based in Princeton, NJ, ticked up 0.60% to $67.01.

Bank of America Merrill Lynch (NYSE:BAC) served as Huntsman’s banker on the acquisition, while Rockwood was advised by Lazard (NYSE:LAZ).