ERWYN, Pa.--(BUSINESS WIRE)--Trinseo (NYSE: TSE), a global materials company and manufacturer of plastics, latex binders and synthetic rubber, announced today its entry into a binding agreement with Arkema S.A., a leader in specialty chemicals, to acquire Arkema’s polymethyl methacrylates and activated methyl methacrylates businesses. PMMA is a transparent and rigid plastic with a wide range of end uses, and is an attractive adjacent chemistry which complements Trinseo’s existing offerings across several end markets including automotive, building & construction, medical and consumer electronics.

“This acquisition will be a catalyst for portfolio transformation toward becoming a higher margin, less cyclical solutions provider,” said Frank Bozich, Trinseo President and Chief Executive Officer. “Arkema’s PMMA business has consistently delivered attractive margins with products serving many of Trinseo’s end markets. We believe this is an excellent first step in our portfolio transformation that is expected to ultimately include the separation of some of our commodity businesses. We look forward to the Arkema PMMA team joining Trinseo and we believe the complementary nature of the transaction should drive growth opportunities for the PMMA business globally.”

The transaction is expected to generate approximately $50 million in annual pretax cost synergies by 2023 and additional revenue synergies by leveraging Trinseo’s market overlap and existing Asia organization to accelerate growth. In addition, it is expected that, as a result of harmonizing global ERP systems, Trinseo will realize an additional $25 million in IT-related productivity savings in its existing businesses. These IT-related savings represent meaningful benefits above the PMMA-related synergies.

Arkema’s PMMA business is a leader in several end market applications including automotive and building & construction, enhancing Trinseo’s existing strong positions in these applications. In addition, the combination of Trinseo’s existing portfolio with the PMMA business will enable greater focus on future growth markets such as Asia, which represents approximately 70% of the global PMMA market.

The PMMA business has high quality products and well-established brand names (such as Plexiglas® in the Americas, Altuglas®, Solarkote® and Oroglas®), a significant amount of technical services and niche applications, strong long-term customer relationships, and targeted growth in its primary market segments through customer intimacy, innovation and technical service. Financially, it has consistently produced high margins and cash flow.

As part of its transformation, Trinseo will maintain a disciplined approach to capital allocation to support growth and drive long-term value. Trinseo is implementing a dividend reduction to $0.08 per share per quarter and suspending its share repurchase program to prioritize leverage reduction and preserve financial flexibility. The transaction is expected to be funded with up to $250 million of existing cash with the remainder from new debt financing. Trinseo expects its net leverage ratio to be in the mid-3x area at transaction close, inclusive of run-rate cost synergies, with targeted deleveraging in the mid-2x area in 2023. Trinseo expects the transaction to close in mid-2021 subject to customary closing conditions and regulatory approvals, including prior consultations with certain of Arkema’s works councils.

Strong Fourth Quarter Earnings Outlook

Guidance for fourth quarter 2020 financial performance is as follows:

• Fourth quarter 2020 net income of $58 million to $68 million
• Fourth quarter 2020 Adjusted EBITDA of $137 million to $152 million
• Outlook includes estimated positive pretax net timing impact of approximately $20 million
• Cash from operations of at least $95 million and capital expenditures of approximately $20 million, resulting in Free Cash Flow of at least $75 million

For a reconciliation of estimated fourth quarter and full-year 2020 net income to Adjusted EBITDA, see Note 1 below.

The continuation of high demand observed during the third quarter has led to strong fourth quarter volumes in many end markets including automotive, tires and appliances. This demand strength has also aided in sustaining higher margins in products such as ABS and polystyrene.

“The demand recovery that began in June has carried its momentum into December,” Bozich said. “This demand recovery has positively influenced both volumes and margins which, in conjunction with our cost control and commercial excellence actions, have led to a fourth quarter earnings expectation that is stronger than both the prior year and prior quarter.”

While it is expected that final financial results for the three months and year ended December 31, 2020 will be within the guided ranges described above, actual financial results may differ materially from this guidance due to the completion of financial closing procedures or from final adjustments and other developments that may arise between now and the time results are finalized.

Potential Divestiture of Synthetic Rubber Business

Trinseo is exploring the potential divestiture of its Synthetic Rubber business. Bozich stated “Our Synthetic Rubber business is a very valuable asset and there are significant growth opportunities in the tire market. However, we believe the industry continues to evolve and there are other parties who can better capitalize on these growth opportunities.”

Advisors

HSBC Securities (USA) Inc. and Deutsche Bank Securities Inc. served as lead financial advisors to Trinseo on the PMMA business acquisition. Deutsche Bank Securities Inc. and HSBC Securities (USA) Inc. provided committed debt financing in support of the transaction. Centerview Partners LLC served as strategic advisor and Kirkland & Ellis served as primary legal advisor to Trinseo.

About Trinseo

Trinseo (NYSE:TSE) is a global materials solutions provider and manufacturer of plastics, latex binders, and synthetic rubber with a focus on delivering innovative, sustainable, and value-creating products that are intrinsic to our daily lives. Trinseo is dedicated to making a positive impact on society by partnering with like-minded stakeholders, and supporting the sustainability goals of our customers in a wide range of end-markets including automotive, consumer electronics, appliances, medical devices, packaging, footwear, carpet, paper and board, building and construction, and tires. Trinseo had approximately $3.8 billion in net sales with 2,700 employees globally in 2019. For more information, please visit: www.trinseo.com.