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MWV Specialty Chemicals, a division of MeadWestvaco Corporation (MWV - Analyst Report), has agreed to buy the remaining shares of Resitec Industria Quimica, Ltda, a leader in the development of chemical product solutions in Brazil. For the last four years, MeadWestvaco owned Resitec in a 50-50 joint venture with South Africa-based AECI Limited. The financial terms of the transaction were not disclosed.

Resitec is a leading producer of emulsifiers for synthetic rubbers and other elastomers. It owns a manufacturing facility located in the city of Duque de Caxias, Rio de Janeiro. It also has an oil refinery in the city of Palmeira, Santa Catarina, Brazil.

Resitec produces chemical products for the rubber, lubricants, food and adhesive markets. Post acquisition, it will also serve in the asphalt and oilfield markets. It exports its products to elastomers, lube-oils and adhesives, among many other markets in the U.S., Latin America, Southeast Asia and Europe.  

MeadWestvaco decided to buy Resitec to fortify its core pine chemical business in Brazil and Latin America. It intends to augment its product portfolio to reach a wider client base. Further, it will give MeadWestvaco the opportunity to serve and grow in the profitable and expanded markets of oilfield, adhesives and paving solutions.

The acquisition fits well with MeadWestvaco’s strategy that includes significant investments in Brazil which is recovering moderately. The market demand is also returning to normal in the region.

MeadWestvaco has operated in Brazil for nearly 60 years. MWV Rigesa is a leader in the Brazilian corrugated packaging market. The company started up the new paperboard machine in Brazil during third-quarter 2012, which is expected to add to its earnings and cash flows in 2013.

However, the inflationary pressure, particularly on wages, will be headwind for MeadWestvaco. Therefore, the company has to focus on improving its pricing and product mix.   

MeadWestvaco’s third-quarter 2012 adjusted earnings of 39 cents per share were in line with the Zacks Consensus Estimate. Total revenues remained flat year over year at $1.40 billion in the reported quarter, surpassing the Zacks Consensus Estimate of $1.37 billion.

MeadWestvaco retains a short-term Zacks #3 Rank (Hold). We have a long-term Neutral recommendation on the stock.

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