Eastman to Acquire Solutia

As part of its expansion strategy, Eastman Chemical Company (EMN - Analyst Report) announced its plans to acquire Solutia Inc. (SOA - Snapshot Report), a global leader in performance materials and specialty chemicals, for $3.4 billion in cash and stock. The transaction is expected to close in mid-2012.

As per the agreement, Solutia stockholders will receive $22.00 in cash and 0.12 shares of Eastman common stock for each share of Solutia common stock. Solutia, which emerged from bankruptcy in 2008, generated about 30% of its revenue from Asia-Pacific countries in 2010 and it expects to grow by a third by 2015.

Eastman believes this acquisition will leverage the company to expand its foothold in china. The company expects the transaction to be immediately accretive to earnings. Eastman expects 2012 EPS to be approximately $5 excluding acquisition-related costs and charges. Eastman is also increasing its 2013 EPS expectation to greater than $6.

Annual cost synergies are expected to be approximately $100 million by year-end 2013. Further, Eastman expects to realize significant tax benefits from Solutia’s historical net operating losses and other tax attributes that are expected to contribute to free cash flow of approximately $1.0 billion through 2013.

Eastman also recognizes the potential for meaningful revenue synergies by leveraging both companies’ technology and business capabilities and end-market overlaps, particularly in automotive and architecture.

Eastman intends to finance the cash portion of the purchase price through a combination of cash on hand and debt.

Recently, Eastman announced its reported fourth-quarter 2011 earnings of 71 cents per share compared with 70 cents per share a year earlier, missing the Zacks Consensus Estimate of 80 cents per share.

Revenues climbed 18% year over year to $1.7 billion, driven by increased selling prices and higher sales volumes. Operating earnings in the quarter increased to $163 million from $161 million in the fourth quarter of 2010.

For 2011, the company reported earnings of $4.56 per share compared with $3.48 per share in 2010.

Eastman battles with large multinational companies such as Celanese Corporation (CE - Analyst Report), The Dow Chemical Company (DOW - Analyst Report) and EI DuPont de Nemours and Company (DD - Analyst Report) across its major business segments.

Currently, Eastman has a Zacks #1 Rank (Strong Buy) for the short-term (1 to 3 months) and we maintain a long-term (more than 6 months) Neutral recommendation on the shares.

Read the full analyst report on SOA

Read the full analyst report on EMN

Read the full analyst report on DD

Read the full analyst report on DOW

Read the full analyst report on CE