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DL Chem seals $2.5 bn purchase of US chemical maker Kraton

After the acquisition closes in H1, 2022, Kraton to become remaining entity of DL Chemical's US operations

By Sep 28, 2021 (Gmt+09:00)

In 2020, DL Chemical acquired Singapore-based Cariflex from Kraton (Courtesy of Cariflex)
In 2020, DL Chemical acquired Singapore-based Cariflex from Kraton (Courtesy of Cariflex)


DL Chemical Co., South Korea's leading petrochemical company, has acquired Texas-based specialty chemical manufacturer Kraton Corp. for $2.5 billion, taking a step closer to its goal of becoming one of the world's top 20 chemicals companies.

DL Chemical, formerly known as Daelim Industrial Co., has signed a definitive agreement to buy 100% of the US-listed company in an all-cash deal, both companies said on Monday. The acquisition price includes $900 million in liabilities held by Kraton.

The transaction surprised the market because of the deal size for South Korea's 18th-largest conglomerate DL Group. Moreover, Kraton's 2020 sales of $1.6 billion were more than double of DL Chemical's 813.4 billion won ($686 million) last year.

It followed the Korean company's $530 million purchase of Singapore-based Cariflex Pte from Kraton in 2020, in its first cross-border acquisition. Cariflex produces specialty synthetic rubber and latex used for medical materials such as surgical gloves and rubber stoppers.

Kraton will become the remaining entity of DL Chemical's US operations and be delisted from the New York Stock Exchange. The deal valued Kraton at $46.50 per share, representing about a 50% premium to the share price of Kraton as of early July 2021. The acquisition news sent shares in Kraton 9.4% higher to $45.41 on Monday.

"After acquiring Kraton's Cariflex business last year, we have successfully integrated that business within the DL Group," Kim Sang-woo, Vice Chairman and Chief Executive Officer of DL Chemical, said in a press release.

"We also have been highly interested in Kraton's specialty polymer and bio-based chemical business, and this combination will allow us to provide our customers with a wider range of innovative products, while adding the ability to serve a diverse range of end markets in over 70 countries worldwide," he added.

Specialty polymers are additives in high demand from automotive, electronics, and semiconductors industries. Kraton is also the largest global provider of pine-based specialty products used for adhesives and road paving and tire materials.

To finance the largest-ever acquisition by the South Korean business group, DL Chemical will use its cash reserves of 1.2 trillion won ($1 billion) and raise the remainder through loans backed by Kraton's assets.

PIVOT TOWARD HIGH-VALUE CHEMICALS

Kim, a former executive of South Korea's top mobile carrier SK Telecom Co., has been spearheading DL Chemical's business expansions since 2012. 

DL Chemical CEO and Vice Chairman Kim Sang-woo
DL Chemical CEO and Vice Chairman Kim Sang-woo

As a key unit of the petrochemical-to-construction conglomerate DL Group, the world's largest producer of polybutene aims to transform itself into a manufacturer of high-value specialty chemicals such as construction and electronic chemicals. 

It controlled 23.3% of the world's polybutene (PB) market as of 2020. PB is a raw material of lubricants, adhesives and electrical insulators.

"Following an extensive review of a wide range of strategic alternatives focused on maximizing value for the benefit of our stockholders, Kraton's Board has determined that the sale of Kraton to DL Chemical is in the best interest of Kraton stockholders," Kevin M. Fogarty, Kraton's president and chief executive officer, said in the press release.

"Moreover, we believe DL Chemical has the industry presence and resources to continue to support the growth of Kraton's business on a global scale." 

The Houston-based company also produces performance chemicals for use in fuel additives, oilfield chemicals, coatings and lubricants. It has enjoyed a dominant position in the polymer market over the past 50 years. But hit by the pandemic-induced economic slowdown, Kraton swung to a consolidated net loss of  $221.7 million in 2020, versus a net income of $55.8 million in 2019.

By comparison, DL Chemical's operating profit came to 64 billion won ($54 million) in 2020 and is on course to exceed 100 billion won for the entire year of 2021. 

JPMorgan advised Kraton for the transaction, while Goldman Sachs worked for DL Group.

DL Chemical's polybutene plant in South Korea
DL Chemical's polybutene plant in South Korea


Since spun off from DL Holdings earlier this year, DL Chemical has looked for new growth drivers in the chemical sector. It is wholly owned by DL Holdings.

Kraton operates production facilities in 13 countries, including Germany, France, the Netherlands, Brazil and Japan, along with five R&D centers.

In South Korea, DL Chemical this month set up a joint venture with US polymer producer REXtac to build a plant to produce eco-friendly hot melt glue. A hot melt glue is an adhesive that can be melted by heat and used for diapers and industrial products such as automobiles. 

It also runs the South Korea-based 50:50 polypropylene JV of PolyMirae with the Netherlands-based LyondellBasell Industries. Polypropylene is used in automotive components and packaging films.

(Updated to add financing details for the acquisition)

Write to Jun-ho Cha and Kyung-min Kang at chacha@hankyung.com

Yeonhee Kim edited this article.

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