Dow selling Styron to Bain Capital for $1.63 billion

MIDLAND, MICH. (Updated March 3, 5:30 p.m. ET) — Dow Chemical Co. is selling its Styron Division, its styrenics and polycarbonate business, to private equity firm Bain Capital LLC for $1.6 billion.

The sale — expected to close by August — might end Dow’s presence in styrenics after more than 70 years. The deal also includes long-term supply agreements between Dow and Styron.

“This transaction is yet another step in our disciplined approach to portfolio management,” Dow Chairman and CEO Andrew Liveris said in a March 2 news release.

Steve Zide, a managing director at Boston-based Bain, said his firm “is greatly impressed by the exceptional quality of the Styron business, and looks forward to working with our new partners to continue to grow and strengthen Styron’s leadership position in the global marketplace.”

Styron has annual sales of about $3.5 billion and employs 1,900 at 40 plants worldwide. Products included in the unit are polystyrene, PC, ABS, styrene acrylonitrile, styrene monomer, styrene butadiene rubber and latex. It also includes Dow’s 50 percent share in Americas Styrenics LLC, the PS/styrene joint venture between Dow and Chevron Phillips Chemical Co. LLC.

When the Styron unit was formed in July 2009, Liveris described its operations as “good-quality businesses with good earnings, but they’re simply not core to our future direction.”

In a March 2 note to investors, stock analyst Kevin McCarthy said his firm — Bank of America Merrill Lynch in New York — “views the sale of Styron as sensible, given our cautious view of supply-demand in commodity styrenics and Styron’s exposure to benzene, a key crude-oil-linked raw material to which Dow is only partially integrated.”

The sale price, McCarthy added, is slightly above the $1.5 billion that his firm thought Styron would bring. Prior to the Bain deal, South Korean conglomerate Lotte Group was said to have interest in Styron, according to media reports.

Bain has an intermittent history of plastics investments in the last decade or so. The firm was part-owner of biaxially oriented polypropylene film producer Treofan Group of Raunheim, Germany, from 2002-05 and, more recently, Bain’s Sankaty Advisors LLC unit became part-owner of Gienow Group of Calgary in mid-2009. Gienow’s window and door products include PVC windows. Bain also was negotiating to buy part of plastics and chemicals maker Huntsman Corp. in 2001-02, but that deal fell through.

Bain has ownership stakes in a pair of businesses — Sensata Technologies BV of Almelo, Netherlands, and FCI of Versailles, France — that operate some injection molding capacity. Sensata makes sensors, circuit breakers and connectors and has more than 10 plants worldwide and its U.S. headquarters is in Attleboro, Mass. FCI makes connectors and controllers at 30 sites worldwide, with its U.S. headquarters in Valley Green, Pa. Both Sensata and FCI had annual sales of more than $1 billion in 2009.

Bain also has an ownership stake in Innophos, a publicly held chemicals firm based in Cranbury, N.J., whose primary product is phosphates. The firm, acquired from plastics and chemicals maker Rhodia SA, had sales of almost $700 million in 2009.

Midland, Mich.-based Dow ranks as the world’s largest PS maker, based on annual capacity, with a market share of about 13 percent. Americas Styrenics also leads the North American PS field, based on annual sales, with a market share of about 30 percent. In styrene monomer, Styron ranks No. 2 in global capacity and is tied for the top spot in North American sales.

But the PS field is becoming a shadow of its former self, with demand in the U.S. and Canda plunging 25 percent in the last five years. The slowdown has been due in part to high raw material prices, combined with general economic malaise. The North American PS market has weathered consolidation and plant closings in recent years.

Dow veterans Mark Remmert and Celso Goncalves have led the Styron unit, with Remmert serving as CEO and Goncalves as chief financial officer.

Dow entered the PS market in the late 1930s, when it converted unsold 55-gallon drums of styrene monomer into PS to prevent them from exploding. The drums were being stored in a field behind Dow’s plant in Midland, and were being sprayed down with water to prevent them from exploding in the summer heat.

PS would go on to become one of Dow’s largest and most profitable units, according to a company history published in 1997, quickly surpassing ethylene cellulose, Dow’s first plastic product, which had been developed in the mid-1930s.

Dow’s styrene monomer business also benefited from the need for synthetic styrene butadiene rubber when the U.S. rubber supply was cut off by the Japanese during World War II. The firm first entered the styrene market as a means of using excess ethylene.  Source

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