Indorama Ventures to buy Huntsman chemicals businesses in $2.1bn deal

Indorama Ventures Public Company Limited has agreed to acquire Huntsman Corporation’s chemical intermediates and surfactants businesses in a transaction valued at $2.076 billion, giving the Thailand-based chemicals group a substantial new position in integrated ethylene oxide, propylene oxide derivatives and surfactants. The consideration comprises $2 billion in cash and the transfer of up to approximately $76 million in net underfunded pension and other post-employment benefit liabilities. The agreement covers manufacturing facilities in Port Neches, Dayton and Chocolate Bayou in Texas, Ankleshwar in India and Botany in Australia.

For Indorama Ventures, the deal is its largest acquisition and represents a major step in its effort to diversify beyond businesses historically centred on polyester and related products. Huntsman, meanwhile, is using the disposal to reduce its exposure to more capital-intensive upstream operations and concentrate further on downstream and specialty chemical businesses. The transaction remains subject to regulatory approvals and customary conditions, with closing expected around the end of the year.

What exactly is Indorama Ventures buying from Huntsman?

The acquired portfolio comprises integrated oxides and derivatives operations spanning ethylene oxide and propylene oxide value chains as well as surfactants. Indorama Ventures said the businesses generated approximately $2 billion in revenue during 2018 with an EBITDA margin of about 18%, giving the buyer immediate scale in products used across consumer and industrial applications.

The manufacturing footprint is also strategically important. The transaction adds major assets on the US Gulf Coast, including Port Neches, as well as production operations in India and Australia. Indorama Ventures sees the Gulf Coast assets as particularly complementary to its existing integrated oxides position, while the broader portfolio adds specialty formulations and downstream derivatives that are less directly exposed to undifferentiated commodity olefin competition.

The businesses serve thousands of customers through hundreds of product grades, according to Huntsman. Huntsman also expects to maintain commercial relationships with Indorama Ventures following the transaction, including long-term arrangements involving propylene oxide supply and other manufacturing relationships.

Why is the transaction transformational for Indorama Ventures?

Indorama Ventures estimates that the acquired operations would add approximately 25% to its 2018 core EBITDA on a pro forma basis and increase manufacturing capacity in higher-margin businesses by roughly 23%. The company also expects synergies to contribute an additional $100 million of annual EBITDA by 2022, while describing the transaction as earnings-accretive within the first full year of operations. These figures are management expectations rather than guaranteed outcomes, but they show the scale of the contribution anticipated from the acquired portfolio.

The acquisition also advances a strategic objective Indorama Ventures had identified for its Integrated Oxides and Derivatives and Specialty Chemicals operations. Those areas provide earnings streams distinct from the company’s established polyester chain and expose the group to downstream markets including personal care, home care, insulation and foam products. Indorama Ventures estimates demand in several of those downstream markets is growing at about 5%.

Indorama Ventures said the transaction would be funded with cash and debt without issuing new equity, limiting immediate shareholder dilution. The company also argued that the purchase price represented less than half the estimated replacement cost of the acquired assets, strengthening its case that buying an established network offers a more attractive route into these markets than building equivalent capacity from scratch.

What does Huntsman gain by selling the businesses?

For Huntsman Corporation, the sale continues a portfolio shift toward more differentiated downstream products and away from operations requiring heavier capital investment. Huntsman said the $2.076 billion transaction value equates to approximately eight times last-12-month adjusted EBITDA when incorporating about $30 million of retained selling, general and administrative costs, some of which management expects to remove over time.

The disposal also changes Huntsman’s capital-allocation options. Chairman, President and Chief Executive Officer Peter Huntsman said the company intends to preserve a strong investment-grade balance sheet while directing capital toward organic research, selected capacity expansions, acquisitions and share repurchases. Huntsman specifically said it planned to accelerate purchases under its existing $1 billion multiyear share-repurchase authorization following completion of the transaction.

On a pro forma basis presented by Huntsman on August 8, the disposal would reduce last-12-month revenue from approximately $8.9 billion to roughly $7.24 billion and adjusted EBITDA from about $1.22 billion to $964 million. At the same time, the company estimated continuing capital expenditure at roughly $260 million compared with approximately $327 million before the adjustment, illustrating management’s argument that the transaction reduces the capital intensity of the portfolio.

Why do Huntsman and Indorama Ventures cite different acquisition multiples?

Huntsman describes the $2.076 billion transaction value as roughly eight times last-12-month adjusted EBITDA when retained corporate costs are included. Indorama Ventures, using its own transaction analysis and anticipated adjustments, cites an enterprise-value-to-EBITDA multiple of approximately 5.7 times. The figures therefore reflect different calculation bases rather than necessarily contradicting one another.

That distinction matters because investors assessing chemical transactions often focus heavily on the earnings base used for acquisition multiples and the extent to which anticipated synergies are included. Indorama Ventures is placing considerable weight on integration benefits and the strategic value of obtaining an established downstream network, while Huntsman is evaluating the proceeds against earnings and costs that will leave its portfolio.

The transaction consequently represents two portfolio strategies moving in opposite but compatible directions. Indorama Ventures is using acquisitions to broaden its chemical earnings base and deepen its downstream position, while Huntsman is monetising those same operations to simplify its portfolio and concentrate capital on specialty and differentiated businesses. If regulatory approvals and closing conditions are satisfied, the $2.076 billion agreement will be one of the more consequential chemical portfolio transactions announced in 2019.