Trinseo announced the acquisition of Arkema’s acrylics businesses – polymethyl methacrylates (PMMA) and activated methyl methacrylates (MMA) – for a total consideration of $1.36 billion. The manufacturer of plastics, synthetic rubber and latex binder expects the transaction to close in mid-2021.
Trinseo (TSE) said that the transaction will complement and expand its existing product lines across multiple end markets including the automotive, medical and consumer electronics, building and construction.
The company expects the acquisition to be accretive to 2022 adjusted EPS. It also projects the transaction to generate $50 million in cost synergies and additional $25 million in IT-related productivity savings. (See TSE stock analysis on TipRanks)
Trinseo intends to fund the transaction with $250 million of available cash and the remaining through new debt financing. Furthermore, the company decided to reduce its quarterly dividend payment to $0.08 per share from $0.40 and suspend its share buyback program “to prioritize leverage reduction and preserve financial flexibility.”
Following the company’s announcement, Alembic Global analyst Hassan Ahmed reiterated a Buy rating on the stock with a price target of $40 (4.8% downside potential). In a note to investors, Ahmed wrote, “we see the purchase price for this high margin business as being reasonable and also feel the deal could be highly accretive provided the stated synergies are achieved.”
Meanwhile, the rest of the Street is sidelined on the stock. The Hold analyst consensus is based on 3 Holds, 2 Buys and 1 Sell. The average price target stands at $37.67 and implies downside potential of about 10.3% to current levels. Shares have increased by 12.9% year-to-date.
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