Citigroup Upgrades Eastman Chemical to Buy
Global chemical company Eastman (NYSE: EMN) has been upgraded from Neutral to Buy at Citigroup on Tuesday.
Citigroup reports that, "EMN closed on the $4.8B merger with Solutia for $22 cash and 0.12 shares for each outstanding Solutia share, representing a ~9x EV/EBITDA multiple."
The report continued, "Solutia is a true “specialty” chemical company with unique products for the auto and architecture industries, both of which seem to be recovering. This is evidenced by Solutia's 2011 EBITDA margin of ~25% compared to the industry average of ~17%."
According to Reuters, Eastman CEO Jim Rogers was quoted on Monday regarding the Solutia (NYSE: SOA) deal saying, "We are pleased to complete this transaction and welcome Solutia to the global Eastman team. The addition of these strong businesses, unique technologies, and highly differentiated products is expected to contribute strong cash generation and a solid return on capital to Eastman. We are confident this acquisition strengthens our position as a top-tier specialty chemicals company and establishes a powerful combined platform with significant opportunities for organic growth. We are committed to the successful integration of Solutia and look forward to delivering the projected growth and synergies from this combination."
Citigroup said of the deal, "Although fully valued in our opinion, we think the deal makes sense for the following reasons: 1) Accelerated exposure to Asia Pacific, as historically more than half of legacy EMN operating earnings were from N. America, 2) Debt associated with the merger was issued at a low cost of 3% and the deal is accretive in the first year by 75c based on our analysis, and 3) Increases the “specialty” nature of the portfolio with capex initiatives to fund future growth."
On Tuesday morning, Eastman Chemical Company traded at about $50.50, up roughly 1.6 percent.
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