Dow Chemical Co. is selling its Styron basic plastics unit to private equity firm
The sale of the unit, which makes latex, rubber and related plastics, will help the nation’s largest chemical maker further bolster Dow’s balance sheet following the $15 billion acquisition of Rohm and Haas last year.
Dow had net debt of $19.5 billion at the end of 2009.
The deal also helps Dow move away from commodity chemicals and lets it focus more on the higher-margin specialty chemical sector.
The $1.63 billion price was higher than some analysts had expected. Morgan Stanley’s Paul Mann had forecast $1.2 billion. He expects the deal to have “minimal impact” on Dow’s earnings.
Reuters had reported that Bain was about to strike a deal.
From the beginning, Styron attracted mostly private equity buyers, which were interested in the unit’s cyclical business and deep connection to basic economic fundamentals.
But the auction was a complex one because Dow has numerous contracts with the unit as both a supplier and a customer.
Midland, Michigan-based Dow will have an option to retain a 15 percent stake in Styron. The deal also includes $400 million in supply agreements, where Dow will feed Styron the materials needed to produce its plastics.
The deal is expected to close by August. Based on 2009 data, Styron is forecast to have $3.5 billion in annual revenue.
Styron has a large presence in Belgium but also has several locations elsewhere in Europe and in Asia and Latin America.
Dow has said it is targeting sales of $2 billion in nonstrategic assets this year. Last week it said it had a “contingency plan” if it was not able to reach that target.
Deutsche Bank and HSBC advised Dow on the Styron deal.
In other Bain Capital news, the Boston-based firm is considering following a number of its rivals in raising a yuan-denominated fund in China, but said it wouldn’t lead the charge there.
This unique dilemma for fund-raising in China has drawn some concerns from foreign limited partners in some global funds due to potential interest conflict in deal-making.
“The short answer is, of course we’re considering it; most of our peers have either done it or announced their intentions to do it,” said Bain Capital managing director Mark Nunnelly, at the Reuters Private Equity and Hedge Funds Summit. He spoke in a phone interview from Boston.
He said such a fund would provide an opportunity for potentially having advantage investing in industries where “speed of accomplishing an investment is important.”
(Reporting by Megan Davies, Ernest Scheyder, Matt Daily and Michael Erman)