Chemical Deals Keeping Pace

In the midst of the worst economic environment in decades, the pace of mergers and acquisitions in the global chemical industry is slowing only slightly compared with 2008. But a lack of easy credit put a damper on big deals in the first half of this year.

For the first six months of 2009, the number of announced mergers and acquisitions (M&A) dropped just 7% to 349 compared with the first half of 2008, according to a report from consulting firm PricewaterhouseCoopers (PwC). High-priced deals, however, were rare; the report counted 25 deals valued at more than $50 million compared with 44 in the year-ago period.

Historically speaking, says Tracey Stover, U.S. chemicals leader for PwC and the report’s author, “chemical M&A deal activity from a volume perspective is relatively consistent, in the range of 150 to the low 200s per quarter.” During tough economic times, she adds, the big change is in the number of large deals.

The report blames tight credit markets for the lack of big-ticket mergers. Similarly, financial investors found it difficult to use leverage in transactions. Financial, or “nonstrategic,” buyers were responsible for only 12% of deal value in the first half of 2009 compared with almost 22% in the high-watermark year of 2007.

Stover says the recession has pushed firms to be open to doing deals. “Companies are thinking about whether to shed noncore product lines or noncore divisions,” she says. At the same time, she notes, “as they see other companies try to avoid bankruptcy and put businesses on the market, some firms can strategically pick up assets.”

Some large deals that were completed in the first half of 2009 were announced in 2008 and are not part of PwC’s 2009 totals. Dow Chemical’s $19 billion purchase of Rohm and Haas and BASF’s $5 billion acquisition of Ciba were both wrapped up in April. Mitsubishi Rayon completed its $1.6 billion purchase of Lucite International in May.

Only one deal of more than $1 billion was announced and completed in the first half of 2009: United Arab Emirates’ state-owned International Petroleum Investment Co. purchased debt-weakened Nova Chemicals for $2.3 billion, including assumed debt.

Dow’s purchase of Rohm and Haas has made the company an ongoing source of businesses for sale. So far this year, Dow has announced the sale of Morton Salt, its stake in Dutch refinery TRN, and its calcium chloride business. Next on the chopping block will be its basic petrochemicals and newly formed Styron businesses.

In a July 31 conference call with analysts, Dow CEO Andrew N. Liveris promised, “We will continue to make decisions that move Dow away from its legacy of heavily integrated, capital-intensive business models.” Liveris told the analysts that Dow is likely to hold on to its AgroSciences business.

Chemical & Engineering News

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