Earlier this year Mitsubishi Rayon said expanding its core acrylics business was a top priority. The Japanese firmÆs manufacturing is currently Asia-centric with plants in Japan, China and Thailand and new facilities under construction in Thailand and Korea.
Lucite is a specialist manufacturer of methyl methacrylate (MMA), a component of acrylic materials, and also sells acrylic-based polymers, resins, sheet and composites. It has production, research, marketing and sales facilities in the Americas, Europe and Asia, including a network of 16 manufacturing facilities located in nine countries. Lucite, which currently employs 1,984 people, was formed in 1993 through an amalgamation of the MMA businesses of ICI of the UK and DuPont of the US.
MMA polymers are used across industries, including information technology and automobiles, and are one of Mitsubishi Rayon's core products.
Lucite had sales of ú849 million ($1.3 billion) for calendar 2007, up just 3% over 2006. But LuciteÆs Ebitda of ú114 million in 2007 represented a margin expansion over 2006. Mitsubishi Rayon is paying a firm value to sales multiple of 1.2 times and an Ebitda multiple of 9 times on trailing numbers.
Lucite is closely held and is majority-owned by the private equity firm Charterhouse Capital Partners. Charterhouse has been involved in buyouts in Europe for over two decades and has closed over 128 transactions. It invested Ç750 million ($956 million) to take over Lucite in October 1999.
Currently, 82% of LuciteÆs equity is held by Charterhouse with the remaining 18% held by employees and directors. Lucite was advised by Deutsche Bank and Merrill Lynch.
Mitsubishi Rayon and Lucite have been both competitors and collaborators in the past. In June 2005 the two companies entered an agreement to construct new MMA manufacturing capacity in Singapore and the USA. The Singapore plant was to be built by Lucite and incorporate proprietary, new technology, while the US plant was to be built by Mitsubishi Rayon. The intention was for each party to supply the other with products from the new facilities.
The acquisition gives Mitsubishi Rayon control over production facilities in Europe and North America and customers on the two continents in addition to its well-entrenched position in Asia, resulting in a more global footprint. Mitsubishi also said it expects to lower its distribution costs due to shared use of logistics facilities and to improve procurement efficiencies by buying jointly for the two firms.
The acquisition is subject to regulatory approvals and is expected to be completed by the end of January 2009.
Mitsubishi was advised by Credit Suisse and Mitsubishi UFJ Securities. It will fund the deal through borrowings from the Bank of Tokyo-Mitsubishi UFJ, marking another Japanese company able to pursue a large acquisition because it can tap into a domestic banking system ready to back its plans.
But JapanÆs banking system has not escaped the fallout of subprime. Japanese stocks have fallen in tandem with global markets and have eroded the equity portfolios of banks, forcing the government to announce a bailout plan for the banking system at the end of October. Japanese companies which are highly dependent on bank debt to finance their cross-border forays could find funding more difficult in the future, say experts.
Mitsubishi Rayon closed yesterday at Ñ220 ($2.24), down 10% as investors seemed to share analyst's views that this was a good long-term move for the Japanese firm but unlikely to yield dividends in the near term.
¬ Haymarket Media Limited. All rights reserved.
