(Reuters) ? Eastman Chemical (EMN.N) is buying specialty chemical maker Solutia Inc (SOA.N) for about $3.38 billion in cash and stock to extend its reach in emerging markets, particularly the Asia-Pacific region.
The deal is valued at $27.65 a share based on Thursday's closing prices, a 42 percent premium for Solutia shareholders. Shares of Solutia rose to $27.50 in trading before the market opened.
Eastman shares also rose in premarket trading, jumping roughly 8 percent in a sign that investors are happy with the deal.
Solutia, whose chemicals are used in products from tires to iPads, emerged from bankruptcy in 2008. Its shares fell 25 percent last year.
"Solutia has transformed itself into a financially strong, innovative performance materials and specialty chemicals company, with enviable market leading positions in virtually every market it serves," Eastman Chief Executive Officer Jim Rogers said in a statement announcing the deal.
After years of sluggish growth, Eastman is now expanding its lucrative specialty plastics and wood applications businesses, and its shares are up about 15 percent in the past 12 months.
The deal calls for Eastman to pay $22.00 in cash and 0.12 of a share for each Solutia share. Solutia has 122 million shares outstanding according to Thomson Reuters data, which would mean Eastman is paying about $2.69 billion in cash and $690 million in stock for the company.
The merger would add to earnings immediately, Eastman said, and the combined company would save about $100 million a year in costs by the end of 2013. The companies expect the deal to close around midyear.
Eastman said it now expects 2012 earnings to be around $5 a share, excluding acquisition-related costs and charges. It raised its 2013 earnings forecast to more than $6 per share.
Jefferies analyst Laurence Alexander said in a research note that the deal, along with Westlake Chemical's (WLK.N) recent bid for Georgia Gulf Corp (GGC.N), reflects a move toward consolidation among specialty chemical companies.
Alexander said that other companies generally thought to also be takeover candidates include Albemarle (ALB.N), Celanese (CE.N), Cytec (CYT.N), Huntsman (HUN.N), OMNOVA Solutions (OMN.N), and W.R. Grace (GRA.N).
Including debt, the Solutia deal is valued at about $4.7 billion, Eastman said. It plans to pay for Solutia with cash on hand, shares and debt.
The deal does not include a financing contingency, Eastman said, meaning the company would have to close on the deal even if it is not able to get banks to fund the purchase. Solutia would have to pay a break-up fee of $102 million if it walks away from the deal.
Eastman Chemical was formed in 1994, when Eastman Kodak (EKDKQ.PK) spun off its chemical business to help pay down debt. Kodak filed for bankruptcy earlier this month.
Citi (C.N) and Barclays Capital (BARC.L) are financial advisers to Eastman, while Deutsche Bank Securities (DBKGn.DE) and Moelis & Co LLC advised Solutia.
(Reporting by Matt Daily in New York and Vaishnavi Bala in Bangalore, Additional reporting by Michael Erman in New York; Editing by Sriraj Kalluvila, Lisa Von Ahn, Dave Zimmerman)
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