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A. Schulman bids for ICO

In the process of searching for a new CEO, compounder and material supplier ICO Inc. instead found a new owner. In a Dec. 3 conference call with investors to discuss fiscal fourth-quarter results, ICO’s current President and CEO, A. John Knapp, offered some detail on the pending acquisition of his company by compounding giant A. Schulman (Akron, OH), saying A. Schulman proposed the deal when ICO took its executive search there. A.

(Akron, OH), saying A. Schulman proposed the deal when ICO took its executive search there. A. Schulman looks to expand its reach into the rotational molding and masterbatch market with the acquisition of ICO in a $191.4 million stock and cash transaction. The bid will require shareholder and regulatory approvals, and it grants ICO shareholders a 51% premium on their shares. For the year ended Sept. 30, 2009, ICO reported annual revenues of $300 million. In a statement, Joseph M. Gingo, chairman, president, and CEO of A. Schulman, said the acquisition, which was unanimously approved by its board, is in line with its stated long-term strategic objectives, which include being a leading global manufacturer in both masterbatch and rotomolding.

In the Dec. 3 conference call, Knapp said that the overall business environment as seen by ICO looked to be improving. “The big picture,” Knapp said, “is last quarter we stated that business had stabilized and it has. In the U.S., our volumes are slowly returning, and we’re cautiously optimistic.” In spite of improved volume, Knapp said ICO’s overall capacity utilization remained low at just over 60%.

Globally, changes are afoot at the company, with ICO’s Australian business currently moving into the newly aquired Micropellets facility in Melbourne. In Malaysia, a new line will start up in April, with another line to be installed “immediately” in its São Paolo, Brazil site. In Dubai, however, ICO continues work to close its operation. “[Dubai] has been a painful learning experience, but imagine what we would have experienced if we tried to exit today,” Knapp said, alluding to the financial difficulties in Dubai.

For the first time in five quarters, ICO reported an increase in revenue, with sales up 15%. It also saw a 16% increase in volume, with some of that tied to the aforementioned acquisition of Micropellets, as well as its earlier purchase of Chroma. Fiscal fourth-quarter volume was up 5% in Europe and 16% in the U.S., on a year-over-year basis. Over the course of ICO’s fiscal year, which ended Sept. 30, the company saw steady improvement in demand, with volume decreases shrinking every quarter, going from minus 29% in the first quarter to only being off 7% for the most recent quarter.
 
In addition to specialty resins and concentrates, ICO provides specialty polymer services, including size reduction, compounding, and related services. The compounds see use in plastic bags and films, household products, toys, water tanks, and other rotational molding applications. It has 20 locations in nine countries.

The acquisition will increase A. Schulman’s presence in the U.S. masterbatch market, and expand its global footprint with a new facilities in Brazil and Australia, as well as an additional facility in Asia. That plant bring its total number of sites in the region to four, including a planned facility for India. In Europe, the acquisition expands its presence, while adding rotomolding and size-reduction capabilities.
 
The combined companies expect to achieve approximately $15 million in run-rate synergies by the end of fiscal 2011, with savings generated from centralizing global purchasing, tax benefits, and eliminating duplicate public company costs. [email protected]

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