By Jessica Hall and Euan Rocha
Private equity firms
The private equity firms are still arranging financing and a price tag for Chemtura, which has a market capitalization of about $2 billion, has not been finalized, the source said. The discussions could fall apart and many details must still be resolved, according to the source.
Shares of Chemtura, a maker of specialty chemicals for the agriculture, pool, construction and packaging industries, surged on the news, gaining 69 cents, or 8.9 percent, to $8.49 on the New York Stock Exchange.
Apollo, Blackstone and Chemtura declined to comment.
“Both Apollo and Blackstone have been active in the chemical M&A market, so they are the logical financial buyers, if you will,” said Longbow analyst Dmitry Silversteyn, adding that there was no immediately clear strategic rationale to such a deal.
“It’s such a hodge-podge of businesses that I’m really surprised that financial buyers would go after it,” he said.
Apollo’s Hexion unit last year agreed to buy U.S. chemical maker Huntsman Corp in a $6.5 billion deal that has been delayed by regulatory hurdles but is expected to close in July.
Blackstone has also been involved in a few chemical deals, buying water treatment technology company Nalco (NLC.N: Quote, Profile, Research) in 2003 and chemicals maker Celanese Corp in 2004, though both companies have since been spun off.
SMALLER DEALS PREVAIL
A Chemtura deal would mark the latest in a series of small and mid-sized deals by private equity firms, which saw mega-sized dealmaking hit a wall last year when credit markets tightened.
In lieu of deals worth $10 billion or more, private equity firms have focused on smaller acquisitions or partial investments in companies rather than outright buyouts.
Raising financing for an acquisition of Chemtura would be manageable, especially if two private equity firms share the risk, said one trader who specializes in takeover stocks.
Still, Chemtura this month posted a wider first-quarter net loss due partly to weakness in its polymer additives business.
“It’s a deteriorating business so it’s very difficult to come up with a fair value with a business that’s not getting better,” said Silversteyn, while adding that Chemtura might get just above $10 a share, but not much more.
In a note to clients, Standard & Poor’s analyst Richard O’Reilly noted Chemtura has a strong position in pool chemicals and pesticides, but it has struggled in plastics additives.
Chemtura put itself up for sale last year, but the auction fizzled, sources involved in the process previously told Reuters.
The company began looking at a broader range of options in December. Strategic alternatives to be considered may include divestitures, acquisitions, changes to its capital structure or a possible sale or merger of the entire company, it had said.
In January, it agreed to sell its global oleochemicals business to PMC Group for an undisclosed sum. In February it sold its fluorine chemicals business to DuPont Co.