Sponsored By

PolyOne has entered into an agreement to acquire Spartech, a global producer of plastic sheet, compounds, and packaging, in a deal valued at approximately $393 million, including the assumption of Spartech's net debt of $142 million. Stephen D.

PlasticsToday Staff

October 24, 2012

4 Min Read
PolyOne announces Spartech acquisition, record earnings

PolyOne has entered into an agreement to acquire Spartech, a global producer of plastic sheet, compounds, and packaging, in a deal valued at approximately $393 million, including the assumption of Spartech's net debt of $142 million. Stephen D. Newlin, chairman, president, and CEO of PolyOne told analysts in a conference call  in which the deal, as well as third quarter earnings, were discussed that Spartech today reminds him a lot of where PolyOne was back in 2007, when it began its structural and cultural transformation.

"What we see in Spartech is that same opportunity," Newlin said. "During our diligence we developed a strong appreciation of Spartech's portfolio. While the transformation [at Spartech] is in its early phases, this acquisition allows us to help the Spartech team accelerate. [Spartech President and CEO] Vicki [Holt] has done a great job, but we have learned so much over the last five years; we know we can be a catalyst and accelerate this transformation."

Deal details

*Spartech stockholders will receive $2.67 in cash and 0.3167 shares of PolyOne common stock for each share of Spartech common stock. Based on the closing price of PolyOne shares on Oct. 23, Spartech stockholders will receive cash and stock valued at $8.00 per Spartech common share. For Spartech investors, the proposed transaction represents a premium of 56% to the value of its stock on October 23.
*Buy back shares will be issued in connection with this transaction, and repurchases will be completed within 12 to 18 months following the acquisition close. Assuming share repurchase is fully executed, PolyOne says the result will be as if the acquisition of Spartech were structured with 100% cash.
*PolyOne has identified annual synergies of approximately $65 million to be phased in by the third year following acquisition. Excluding acquisition-related costs and charges, PolyOne expects the transaction to be accretive to earnings in the first full year and ultimately add $0.50 to EPS, as the $65 million of synergies are achieved.

Newlin said Spartech will expand PolyOne's specialty portfolio with what he called "adjacent technologies in attractive end markets", including ones where PolyOne already has a presence, as well as new ones like aerospace and security.

Spartech produces polymeric compounds, concentrates, custom extruded sheet, rollstock products, and packaging technologies for a range of markets. The company has three business segments and operates 30 facilities across the U.S., Mexico, Canada, and France. Over the trailing 12 months, ended August 4, Spartech recorded sales of approximately $1.2 billion and adjusted EBITDA of $53.1 million.

PolyOne also believes that Spartech has a significant opportunity to boost its sales overseas, with 94% of its revenues at this time coming from North America.

"The opportunity to expand globally is huge," Newlin said. "There is a tremendous opportunity to geographically expand all of Spartech, from predominantly North America to global, using global PolyOne network."

Adjacent technologies
Apart from some overlap in color and specialty compounds, PolyOne Executive VP and COO Bob Patterson said that Spartech provides PolyOne with some complementary technologies. "When you look at the sheet and packaging, [Spartech] really is very different from what we have today," Patterson said, "and we view all of those different areas as attractive."

He also noted the appeal of Spartech's market leadership positions in sheet, rigid barrier packaging, and cast acrylics. Newlin believes Spartech will be able to work with its new sister companies within PolyOne to enhance existing products for customers.

Third Quarter Earnings

*PolyOne announced revenue of $740.2 million for the third quarter of 2012, compared to $735.8 million in the third quarter of 2011.
*Diluted earnings per share totaled $0.27, compared to $0.23 for third quarter of 2011.
*Adjusted diluted earnings per share increased 27% to $0.33 for the third quarter of 2012, compared to $0.26 in the third quarter last year.
*12 consecutive quarters of year-over-year double-digit adjusted earnings per share growth. 

"We think there's a tremendous pull from [PolyOne portfolio company] Color Matrix," Newlin said, "where we can put additives into Spartech's sheet products to add value. We really like the approach of putting more value into the offering for the customer; make the formulation of the these have greater attributes."

Commodity no more
Newlin pushed back against the assertion that Spartech's products and markets represent a commodity play, saying they truly fit PolyOne's specialty strategy. "We don't believe [Spartech's portfolio] is mostly commodity by any means," Newlin said. "I will tell you, when you get inside and see what they're doing for their customers and how specialized it is; we would categorize this entire batch as specialty, as we did with PolyOne." Newlin said that even where business components are commoditized, Spartech was still in the market and had customers that could benefit from value added technologies.

Sign up for the PlasticsToday NewsFeed newsletter.

You May Also Like