Chemical maker, Celanese (CE - Free Report) and funds managed by leading investment firm, Blackstone (BX - Free Report) have agreed to form a joint venture (“JV”) that will create a global acetate tow supplier. Celanese will own 70% of the JV with Blackstone owning the remaining 30%.
Under the deal terms, Celanese will contribute its Cellulose Derivatives unit including its equity interest in existing JVs with China National Tobacco Corporation while Blackstone will contribute its Rhodia Acetow unit that it recently purchased from Solvay.
The creation of the JV is subject to regulatory clearances and customary closing conditions that will determine the timing of its completion. Upon its completion, the JV will be governed by a board consisting of three directors appointed by Celanese and two by Blackstone.
The JV will have an expanded global production footprint including eight fully-owned manufacturing plants and three existing JV sites. The new company, which is expected to generate 2017 annual pro forma revenues of around $1.3 billion, will be well placed to more efficiently address customers’ needs and offer the highest level of quality and services. The integration of technology and complementary tow assets will also result in synergies, primarily from optimization of supply chain networks and procurement of raw materials, energy, equipment and other services.
The companies also noted that commitments for $2.2 billion of debt have been received by the partners on behalf of the JV, which is expected to be supported by cash generated at the new company. Celanese will receive an initial dividend of roughly $1.6 billion following the formation of the JV, which the company is expected to deploy on investment in organic growth, acquisitions, share buybacks and debt reduction, among others.
Celanese, earlier this month, provided an update on its Ibn Sina JV and the construction of a 50,000-metric ton polyacetal manufacturing plant in Jubail Industrial City, Saudi Arabia. The company said that the polyacetal facility is currently in the testing phase in preparation for commercial production that is expected in third-quarter 2017. The construction of the facility will support future growth of the polyacetal industry in the region. Upon the start-up of the plant, Celanese’s economic interest in Ibn Sina will increase to 32.5% from 25%.
Celanese has outperformed the Zacks categorized Chemicals-Diversified industry over a year, partly attributable to its strategic measures including productivity and efficiency improvement actions. The company’s shares have rallied around 29.6% over this period, compared with roughly 18% gain recorded by the industry.
Celanese’s strategic measures including cost savings through productivity actions should lend support to its earnings in 2017. The company sees its adjusted earnings per share to increase 8–11% in 2017.
The company’s Advanced Engineered Materials unit is expected to continue to grow offsetting the decline in tow earnings. The company's Acetyl Chain unit is also anticipated to benefit from a volatile raw materials backdrop and the current industry environment is expected to improve profits as the year progresses.
Celanese currently carries a Zacks Rank #3 (Hold).
Stocks to Consider
Better-ranked stocks in the chemical space include Huntsman Corporation (HUN - Free Report) and The Chemours Company (CC - Free Report) , both sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Huntsman has an expected long-term earnings growth of 7%.
Chemours has an expected long-term earnings growth of 15.5%.
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