Huntsman to Divest Two Chemical Units to Indorama for $2.1B

Huntsman Corporation HUN recently entered into a definitive agreement with Indorama Ventures to divest its chemical intermediates businesses, including PO/MTBE, and its surfactants businesses.

The transaction is valued at $2.076 billion, which comprises a cash purchase price of $2 billion along with the transfer of up to roughly $76 million in net underfunded pension as well as other post-employment benefit liabilities. The deal is expected to close near the end of 2019, subject to regulatory approvals and other customary closing conditions.

Per the deal terms, Indorama Ventures will buy Huntsman's Texas-based manufacturing facilities located in Port Neches, Dayton and Chocolate Bayou. It will also acquire the Ankleshwar, India and Botany, Australia facilities.

Per Huntsman, the transaction transforms its balance sheet and accelerates its ability to expand in downstream areas. The deal is another milestone in terms of its strategy to focus on downstream and specialty businesses. The company believes that the deal will enable it to generate more stable and consistent margins as well as strong free cash flow.  

Huntsman also stated that it intends to accelerate share repurchases under its existing $1-billion multi-year authorization following the transaction closure.

Huntsman's shares have gained 4.7% year to date against the industry’s 23.3% decline.

The company recorded adjusted earnings per share of 63 cents in the second quarter, down from $1.01 in the year-ago quarter. The figure trailed the Zacks Consensus Estimate of 65 cents.

Revenues fell nearly 9% year over year to $2,194 million and missed the Zacks Consensus Estimate of $2,287.1 million. The company witnessed lower sales across its businesses in the second quarter.

Huntsman, in its second-quarter call, stated that it will maintain its focus to control costs, protect margins as well as maintain a strong balance sheet and cash generation amid economic uncertainties in the second half of 2019. The company will also continue with its balanced approach toward capital allocation. This includes share buybacks as well as strategic organic and inorganic growth in its downstream businesses.

Zacks Rank & Key Picks

Huntsman currently carries a Zacks Rank #5 (Strong Sell).

Some better-ranked stocks in the basic materials space are Kinross Gold Corporation KGC, Alamos Gold Inc AGI and Arconic Inc ARNC, all sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Kinross has an expected earnings growth rate of 140% for 2019. The company’s shares have surged 62.3% in the past year.

Alamos Gold has projected earnings growth rate of 280% for the current year. The company’s shares have rallied 55.1% in a year’s time.

Arconic has an estimated earnings growth rate of 42.7% for the current year. Its shares have moved up 23.6% in the past year.

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