UPDATE 3-Eastman Chemical to buy Solutia for $3.38 billion

* Offer of $27.65 a share represents a 42 percent premium

* Eastman Chemical sees annual savings of $100 mln by end-2013

* Including debt, deal valued at $4.7 bln

* Shares in Eastman, Solutia both trade higher (Adds context, share prices, CEO comment)

By Matt Daily and Vaishnavi Bala

Jan 27 (Reuters) - Eastman Chemical is buying specialty chemical maker Solutia Inc 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.

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.

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.

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.

Including debt, the deal is valued at about $4.7 billion, Eastman said. It plans to pay for Solutia with cash on hand, shares and debt.

Eastman Chemical was formed in 1994, when Eastman Kodak spun off its chemical business to help pay down debt. Kodak filed for bankruptcy earlier this month.

Citi and Barclays Capital are financial advisers to Eastman, while Deutsche Bank Securities and Moelis & Co LLC advised Solutia.

Eastman shares were up 8.2 percent at $51 in premarket trading. (Reporting by Matt Daily in New York and Vaishnavi Bala in Bangalore; Editing by Sriraj Kalluvila and Lisa Von Ahn) ((vaishnavi.bala@thomsonreuters.com within U.S. +1 646 223 8780 outside U.S. +91 80 4135 5800 Reuters Messaging:vaishnavi.bala.reuters.com@reuters.net)