News from The Valence Group Conference – Customer, cultural synergies drive Kraton cost dividend

The Valence Group Global Chemicals M&A Conference

Wednesday, 14 September 2016 | Nigel Davis | ICIS Chemical News

NEW YORK (ICIS)–Newly named Kraton Corporation is running at or above its first-year synergy cost reduction targets as the merger of Kraton Polymers and Arizona Chemical takes shape, CEO Kevin Fogarty said on Wednesday.

The overriding target for $65m/year plus in cost synergies is being driven by customer and cultural synergies between block copolymers producer Kraton Polymers and pine chemicals firm Arizona Chemical, he added. Fogarty was speaking at the Valence Group Chemicals M&A Conference in New York.

Kraton adopted the new name, and Fogarty his position as president and CEO, on Wednesday.

“The acquisition of Arizona Chemical Holdings Corporation in January of this year was a transformational event for Kraton,” Fogarty said in an earlier press statement.

“The combination of two industry-leading companies significantly expanded the scope and scale of our global operations and expanded our product offering beyond our legacy styrenic block copolymer and specialty polymer products to include a wide range of specialty chemical products based upon renewable resources,” he added.

The $1.4bn acquisition of Arizona Chemicals added very different chemistries to the Kraton portfolio but more than 50% of synergies in the combined customer base. The ability to be able to significantly expand the product offering to customers in the adhesives, roads and construction, fuel and lubricant additives, and the oilfield chemicals markets is expected to be a driver behind the success of the deal.

Fogarty stressed that the Arizona Chemical acquisition lessened the exposure of Kraton to certain monomers, particular to butadiene, where price volatility had hit the company hard between 2011 and 2013.

On the wider implications for chemical industry M&A, he pointed to the cultural similarities between the two companies which both had been spun out of major players – Shell and International Paper – and both owned, separately, by two successive private equity firms.

Both companies were leaders in their respective markets focused on price leadership, he said, which helps the combined group greatly in conversations with customers.

The Arizona Chemicals acquisition doubled the number of plants and people and earnings before interest, tax, depreciation and amortisation (EBITDA) of the former Kraton Performance Polymers.