29/01/2014

www.gupta-verlag.de/thermoplastic-elastomers

Kraton and LCY combine SBC business

Combined newly-formed company will be become domiciled in the UK The combined company will be incorporated in the UK, will be listed on the NYSE, and will be led by Kevin M. Fogarty, President and CEO of Kraton, and a global management team with administrative headquarters located in Houston, TX, USA. "This combination addresses the strategic objectives of both Kraton and LCY.  For Kraton, it represents a logical next step in our ongoing strategy to reposition our manufacturing assets, providing for significant improvements in overall cost structure, and furthering our investments in Asia, thereby increasing our participation in the fast-growing markets of China, and Asia Pacific more generally.  Moreover, the combined company's capital structure, financial flexibility and cash-flow profile will serve as a strong foundation for continued investment in growth," Fogarty said. "Kraton is an innovation company and our commitment to innovation, including our ongoing portfolio shift, will continue as the combined company focuses on accelerating growth in both its innovation portfolio and its core product offerings." "LCY's SBC business, with its cost-effective operations and the strategic location of its manufacturing plants, including its recently expanded 300 kiloton plant in Huizhou, China, has generated growth rates exceeding twice the average of the SBC industry.  Operations of the combined company will benefit significantly from LCY's cost-effective process capabilities and strategic sourcing of raw materials in Asia," added Fogarty.  "We expect the combination to result in synergies of USD 65 million on a run-rate basis by 2017, which will be achieved through fixed-cost rationalization, optimization of variable-costs and through reductions in overhead costs.  We estimate we will incur costs totaling approximately USD 70 million in the next three years to achieve these synergies.  We also expect the combination to be accretive on an operating basis by USD 0.75 - USD 0.80 in the first full year of combined operations." "Through the leadership of Bowei Lee, Chairman and Chief Executive Officer of LCY, LCY has established an impressive track record for profitable growth in its SBC operations.  We feel that LCY's market presence in Asia and the cost effectiveness of its manufacturing operations provide a strong complement to the innovation focus and portfolio breadth of Kraton," said Dan Smith, Chairman of Kraton's Board of Directors. "The combination of Kraton and LCY's SBC business will result in a company with extensive capabilities and will establish a platform for continued innovation and profitable growth that will benefit Kraton's shareholders, its customers and employees," Smith added.  "With one-third of pro forma revenues coming from China and greater Asia, the combined company will be geographically balanced across its three regions - the Americas, Europe and Asia - and well-positioned to serve customers around the world with an industry-leading platform of innovation-grade products." "The combination agreement between the parties addresses the strategic objectives for both LCY and Kraton and allows the combined company to develop and manufacture more innovative products for broader applications in a cost efficient manner.  The combination of LCY's innovative SBC manufacturing technology and geographic focus in higher growth markets with Kraton's leading R&D resources will make the new company a leading global player in SBC's.  Projected synergies are expected to be achieved within three years, creating significant value for the combined company, shareholders and employees, as well as continuing to promote Taiwan's petrochemical industry as an important force on the international stage," said Bowei Lee. The new combined company will be a public limited company under the laws of England to enhance the financial flexibility of the global enterprise.  The combined company will establish a registered office in England, and will maintain administrative headquarters in Houston.  At the closing of the transaction, Kraton, as well as the entities owning LCY's SBC business will become subsidiaries of the combined company.  The current shareholders of Kraton will exchange their shares on a one-for-one basis for shares in the combined company.  At closing, Kraton's shareholders will own 50 % of the shares of the combined company, and LCY will own the other 50 %. Dan Smith Chairman of the combined company's Board Pursuant to a shareholder agreement to be entered into at closing setting forth governance rights and limitations relating to LCY's ownership, the Board of Directors of the combined company will consist of 14 directors, with seven of Kraton's ten current directors continuing to serve as directors of the combined company.   LCY will designate seven directors to the combined company's Board. Dan Smith, who serves as Chairman of the Board of Directors of Kraton, will become Chairman of the combined company's Board for a period of two years post-close, after which, the LCY designees on the combined company Board will select the Chairman for a period of two years.  Thereafter the chairman will be selected by the full Board. LCY's SBC operations are expected to be contributed on a cash free, debt-free basis, such that upon closing, long-term debt of the combined company is expected to be essentially unchanged from that of Kraton and therefore the combined leverage ratio is expected to decline to less than 1.5 turns in the first year. The Board of Directors of LCY has also approved the definitive agreement to combine LCY's SBC operations with Kraton.  The combination is subject to the approval of Kraton's and LCY's shareholders; U.S., Taiwan, China and Turkey regulatory approvals; and other customary regulatory and other approvals and conditions. Closing expected in Q4 2014 The transaction is currently expected to close in the fourth quarter 2014, subject to the timing of necessary regulatory approvals.  Kraton intends to file a proxy statement/prospectus with the U.S. Securities and Exchange Commission relating to the transaction as promptly as practicable. LCY's SBC Business The Taiwanese company has entered the SBC business in 1996. In 2003 LCY acquired Polimeri Europa's SBC plant in Baytown, TX, USA. In 2006 it opened a SBC plant in Huizhou, China, and added a second production there in 2009, and a third in 2013, adding 100 kt of nameplate capacity. Total nameplate capacity is ca. 490 kt.

www.gupta-verlag.de/thermoplastic-elastomers