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According to Reuters, Eastman Chemical Company (EMN - Analyst Report) received approval from the European Commission for the purchase of chemical company Solutia Inc. . As per the commission, the deal would leave the merged entity with strong competition in the market for polyvinyl butyral (PVB) sheet material.

Eastman’s move to acquire Solutia – a global leader in performance materials and specialty chemicals – is a part of its expansion strategy. The company announced its plan to acquire Solutia for $3.4 billion in cash and stock in January 2012. The transaction is expected to close in mid-2012. Eastman believes that the acquisition will help the company expand its foothold in China. The company expects the transaction to be immediately accretive to earnings.

Last month, Eastman released its financial results for the first quarter of 2012. The company reported first-quarter 2012 earnings of $1.13 per share, a decline from $1.39 per share a year ago. Excluding costs associated with its imminent acquisition of Solutia and one-time gains, the Tennessee-based chemical company earned $1.22 a share in the quarter, which topped the Zacks Consensus estimate of $1.14.

Revenues rose 4% year over year to $1,821 million, but missed the Zacks Consensus Estimate of $1,881 million. The growth was aided by increased selling prices.

Eastman Chemical expects the global economy to grow slowly while volatility in raw material and energy costs would diminish in the near-term. The company expects earnings for 2012 to be roughly $5.30 a share. It expects to benefit from the increased capacity additions as well as the Solutia acquisition.

Eastman Chemical’s diversified chemical portfolio, along with its integrated and diverse downstream businesses, is driving earnings. The company benefits from business restructuring and cost-cutting measures. It has sold unprofitable units and closed down the poorly performing ones.

The company, which competes with The Dow Chemical Company (DOW - Analyst Report) and E. I. du Pont de Nemours and Company (DD - Analyst Report), holds a short-term Zacks #3 Rank (Hold). We currently have an “Outperform” recommendation on the shares of Eastman Chemicals.

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