Shares of specialty chemicals and advanced materials company Rockwood Holdings, Inc. (ROC) screamed higher to reach a new high after chemicals maker Albemarle Corp. (ALB) agreed to buy it in a cash and stock deal worth $6.2 billion.
The move underscores both companies’ efforts to shore up growth by creating a premier specialty chemicals company with leading market position in a host of high-margin businesses including lithium, surface treatment and refinery catalysts.
Rockwood’s shares shot up as much as 13.8% to touch a new 52-week high of $86.18 yesterday. The stock retraced to end the day at $83.14, gaining around 9.8%. The New Jersey-based company’s shares are up around 17% so far this year versus a 7.9% gain for the S&P 500.
Rockwood is the world’s top producer of lithium and lithium compounds, a major component of lithium-ion batteries used in electric cars, laptops and smartphones, among others. It had been actively involved in disposing its non-core businesses to become a more focused specialty chemical company.
Rockwood has sold its advanced ceramics business – CeramTec – to private equity firm Cinven for €1.49 billion (roughly $2 billion) and its clay based additives business to Germany-based ALTANA Group for $635 million. It is also selling its Performance Additives and Titanium Dioxide (TiO2) businesses to Huntsman Corp. (HUN) for $1.1 billion.
Under the deal terms, Albemarle will pay $50.65 in cash and 0.4803 of a share of its stock for each outstanding Rockwood share. The deal values Rockwood at $85.53 per share, representing a 13% premium to its closing price on Jul 14. Albemarle has secured committed financing from BofA Merrill Lynch – a unit of Bank of America Corp. (BAC) – to fund the cash portion of the deal.
The deal has received the green light from the boards of both companies and is subject to shareholder and regulatory clearances and other closing conditions. Following the closure of the transaction (expected in first-quarter 2015), Albemarle’s shareholders will own roughly 70% of the merged company with Rockwood shareholders holding the balance.
Albemarle's CEO Luke Kissam will be the President and CEO of the integrated company which will operate under the “Albemarle” banner. BofA Merrill Lynch is serving as financial advisor to Albemarle while Lazard and Citi are acting as financial advisors to Rockwood.
The deal brings together two leading specialty chemicals makers with strong market positions and complimentary product portfolios. The combined company will have greater customer reach, enhanced diversity across end markets, technologies and geographies. Moreover, the integrated company will gain from access to low-cost raw material and highly specialized production assets.
The combined entity will be well placed to drive earnings growth by expanding the reach of lithium-based energy storage products including batteries for the automotive industry, leveraging attractive trends in refinery catalysts including rising demand for transportation fuels, expanding in the bromine markets through new applications and capitalizing on its leading position in surface treatment products.
Albemarle expects the acquisition to be accretive to its cash earnings per share in the first year and adjusted earnings per share in the second year. Moreover, it expects around $100 million in cost synergies by 2016.
Rockwood currently retains a Zacks Rank #3 (Hold) while Albemarle is a Zacks Rank #4 (Sell) stock.