Cabot bulks up specialty chemicals with Norit buy

Thu Jun 21, 2012 10:20am EDT

Related Topics

(Reuters) - Chemical maker Cabot Corp (CBT.N) will buy Netherlands-based activated carbon manufacturer Norit NV from its private equity owners for $1.1 billion, narrowing its focus on higher-margin specialty chemicals.

Leading chemical companies such as Dow Chemical Co (DOW.N), German conglomerate BASF SE (BASFn.DE) and Ashland Inc (ASH.N) are focusing on specialty chemicals, demand for which tends to be resilient during economic downturns.

Specialty chemicals are widely used in water purifiers, pharmaceuticals, skin creams, hair gels and cosmetics, while commodity chemicals depend on cyclical industries such as machinery, auto and construction.

Activated carbon is used to purify water, de-colorize sugar and food products and improve the purity of pharmaceuticals, among other things.

"This acquisition supports the ongoing transformation of our portfolio to a higher margin, less cyclical, specialty chemicals-focused company," Cabot Chief Executive Patrick Prevost said.

Cabot sold its supermetals business to Australia's Global Advanced Metals last year as it began to focus on specialty chemicals and carbon black.

"(The Norit deal) will provide us with further growth opportunities in emerging markets and new customer-tailored applications," Prevost told analysts on a conference call.

In addition to increasing its focus on specialty chemicals, the new deal will also help it tap into the growing demand for activated carbon to remove mercury from industrial emissions, Cabot said.

Last December, the Obama administration unveiled the first-ever norms intended to slash mercury emissions from coal-fired plants. The new rules are estimated to cost utilities about $9.6 billion every year, according to the U.S. Environmental Protection Agency.

Cabot sees demand of around 150 million pounds per year in the mercury removal space at present. It expects demand to grow about 30 percent annually over the next few years, touching 600 million pounds by 2017.

Cabot will buy Norit from affiliates of British private equity fund Doughty Hanson & Co Managers Ltd and Dutch investment firm Euroland Investments BV. Norit was acquired by a group of investors led by Doughty Hanson in 2007.

Reuters reported in April that Norit, which had earlier announced plans for a U.S. initial public offering, was also looking at selling itself.

BIGGEST DEAL YET

Norit has 10 plants in the Americas and Europe that make activated carbon.

Cabot's Prevost said the company expects revenue growth at Norit to be between 10 and 12 percent. Norit's revenue has grown at about 12 percent annually in the last 5 years.

Norit, which sold its Clean Process Technologies unit to Pentair Inc (PNR.N) for 503 million euros last year, had sales of $360 million and earnings before interest, taxes, depreciation, and amortization of $92 million in 2011.

Cabot expects the Norit deal to add 20 cents to 25 cents per share to its earnings, excluding one-time costs, in 2013.

Cabot will fund the deal with $200 million in cash and $300 million of borrowings. The company also plans to issue about $600 million of long-term debt.

The transaction, which is expected to close by the end of the year, requires approval from U.S. and German regulators and consultation with the Dutch works council, representing employees.

If completed, the Norit deal will be Cabot's largest to date. Norit's CEO Ronald Thompson will continue to lead the business after the deal, Cabot said.

J.P. Morgan was Cabot's financial adviser for the deal.

Cabot shares fell about 3 percent to $36.95 in early trade on the New York Stock Exchange on Thursday.

(Reporting by Swetha Gopinath in Bangalore; Editing by Maju Samuel, Sreejiraj Eluvangal)

FILED UNDER:
A couple walks along the rough surf during sunset at Oahu's North Shore, December 26, 2013. REUTERS/Kevin Lamarque

Find your dream retirement town

Florida? Hawaii? Reuters has teamed up with Zillow to give you the power to customize a list of your best places to retire.  Video | Full Article