UPDATE: Kraton Performance Polymers, Inc. Agrees To Acquire Arizona Chemical Holdings Corporation, $1.37B Cash

Kraton Performance Polymers, Inc.

, a global producer of highly-engineered polymers, today announced that it has entered into a definitive agreement to acquire all of the capital stock of privately held Arizona Chemical Holdings Corporation for a cash purchase price of $1.37 billion. Arizona Chemical is a leading global producer of high-value performance products and specialty chemicals derived from non-hydrocarbon, renewable raw materials. Arizona Chemical's end use market exposure is highly complementary with that of Kraton, particularly in markets such as adhesives, roads and construction, coatings and oilfield chemicals. "This transformational acquisition will extend Kraton's technology and market diversification, while substantially increasing profitability and free cash flow, creating a more robust platform for growth and value creation for our stockholders," said Kevin M. Fogarty, Kraton's President and Chief Executive Officer. "Our stockholders will benefit from identified pre-tax synergies of $65 million, which we expect to achieve by 2018. Arizona Chemical has a stable and attractive margin profile, with adjusted EBITDA margins in excess of 20% over the past five years and an attractive cash flow profile. On a combined basis we expect to generate free cash-flow of more than $450 million over the first three years of combined operations, which will be available for debt reduction and allocation to stockholders." "Kraton and Arizona Chemical are both well-respected, leading providers of high quality products and innovations in their respective specialty markets," said Dan F. Smith, Chairman of Kraton's Board of Directors. "The fact that Kraton and Arizona Chemical have such a highly complementary market focus, coupled with a shared business philosophy fundamentally premised on product differentiation and portfolio shift to drive improved profitability, is what makes this such a compelling combination," added Smith. "Over the past year we have spoken at length to our employees, our innovation partners, and our stockholders about our three-part strategy. The acquisition of Arizona Chemical is consistent with our stated strategy, and it creates new opportunities to deepen our customer relationships by expanding Kraton's presence in our core markets, where more than 50% of Arizona Chemical's sales are directed," said Fogarty. "In addition, given the renewable nature of Arizona Chemical's product and technology offerings, the complementary growth we foresee can be accomplished while reducing our overall exposure to hydrocarbon-based feedstocks," Fogarty added. "Lastly, I want to compliment Arizona Chemical's leadership team, in particular Kees Verhaar, its President and CEO since 2008. Kees and his team have formulated and executed a highly successful transformation of the company into the market-leading specialty chemical company that it is today. We look forward to working with the team at Arizona Chemical to capitalize on opportunities to further expand Arizona's portfolio into new markets and geographies." The $1.37 billion base purchase price is subject to adjustment for cash and indebtedness at closing, as well as an adjustment for working capital and other items. Kraton will finance the purchase price through debt facilities that have been committed by Credit Suisse Securities (USA) LLC, Nomura Securities International, Inc., and Deutsche Bank Securities, Inc. The seller of Arizona Chemical is AZC Holding Company, LLC, which is principally owned by investment funds managed by American Securities LLC. "Following the acquisition, Kraton's long-term debt is expected to be approximately $1.78 billion including approximately $1.35 billion of covenant-lite term loans, with the balance comprised of senior unsecured notes. In addition, we will retain adequate liquidity through a $250 million asset-based revolving credit facility which we expect to be largely undrawn," said Stephen E. Tremblay, Kraton's Executive Vice President and Chief Financial Officer. "We expect the strong free cash flow profile of both Kraton and Arizona Chemical will allow the combined company to rapidly de-lever from net leverage at closing of approximately 4.6 times to approximately 3.0 times by year-end 2017." The acquisition is subject to regulatory and other customary approvals and conditions and is currently expected to close in late 2015 or early 2016. Financial advisors for Kraton are Lazard, J.P. Morgan Securities LLC and Nomura Securities International, Inc. and legal advisors for Kraton are Baker Botts L.L.P. and Cleary Gottlieb Steen & Hamilton L.L.P. Financial advisors for the sellers are Credit Suisse and Morgan Stanley and the legal advisor for the sellers is Weil, Gotshal & Manges LLP.