Ingevity Corp. will acquire Georgia-Pacifics pine chemicals business – including tall oil fatty acids used in metalworking fluids and corrosion inhibitors – for $315 million in cash. Subject to conditions and regulatory approvals, the transaction is expected to close in late 2017.
According to Ingevitys presentation on the acquisition, it will include Georgia-Pacifics site in Crossett, Arkansas, which employs about 70 people. The acquisition will include pine chemicals-related assets at the Crossett plant, saleable inventory and customer lists, as well as various patents and trade names associated with acquired product lines.
Combining Ingevity and Georgia-Pacifics pine chemicals business adds scale, Ingevity President and CEO Michael Wilson said in a conference call about the acquisition. In addition, the businesses are highly complimentary – yet there exists limited customer overlap.
Wilson said that adding Georgia-Pacifics Crosset Pines, Arkansas refinerys 125,000 tons of capacity will increase Ingevitys pine chemicals refining capacity by more than 45 percent. Ingevity has pine chemical plants in DeRidder, Louisiana, and in North Charleston, South Carolina, with a total of 275,000 tons of capacity.
Separately, Ingevity will enter into a 20-year, crude tall oil supply contract with Georgia-Pacifics paper mill operations, he said, with the contracts pricing mechanism based on current market conditions and tied to energy indices. This contract will improve the long-term security of supply of this limited, strategic raw material, and should reduce potential volatility on cost and margins going forward, Wilson noted. This annually provides sufficient CTO volume to operate the Crossett refinery at full capacity.
Upon completion, this acquisition will give us stronger application expertise and a wide range of end use markets, Wilson said. Also, due to our extensive global commercial organization, we will be able to introduce Georgia-Pacific products and technologies more broadly geographically. He noted that while 90 percent of Georgia-Pacifics pine chemical sales are domestic, Ingevity does business in 65 countries, adding that Ingevitys own tall oil fatty acid products compete in a global fats and oil market.
In a news release, Wilson noted Ingevitys Performance Chemicals segment has recently shown improvement. The segment posted operating profit of $26.4 million for the second quarter, up 14.8 percent from a year earlier. Second quarter sales reached $170.8 million, down 0.2 percent.
The company said cost savings from the acquisition will come from manufacturing optimization among the combined three chemicals plants and lower transportation and logistics costs.
Headquartered in North Charleston, South Carolina, Ingevity operates from 25 locations around the world and employs about 1,500 people. The company began operations as a standalone, publicly traded company in May 2016 following a spinoff from WestRock Co., formerly MeadWestvaco.
Wilson noted that there are a number of other pine chemical operations globally, including several in Europe and a couple more in Asia. We said from the outset that geographic expansion is an opportunity we see for growth in the longer term, he said during a Q&A with analysts.
Market research firm Global Market Insights Inc. projects the tall oil fatty acid market to reach $1 billion by 2024. In a news release, the firm said the tall oil fatty acid market is highly consolidated, with the top five companies – distributor Lintech International and manufacturers Arizona Chemical Co. and Georgia-Pacific in the United States, Harima Chemicals of Japan and Forchem of Finland – accounting for more than 75 percent of the overall share.
Arizona Chemical was acquired by Kraton Performance Polymers for $1.4 billion in early 2016.
In July, Orgkhim and Ilim set up a 50-50 joint venture to produce chemical products, including tall oil fatty acids and their derivatives, at a plant in northern Russia. The JV, called Amber Stream, is scheduled to start production by the end of 2017 at its plant in Koryazhma, Arkhangelsk Oblast.