Evonik caps busy 2016 with two more moves

ESSEN, Germany—Evonik A.G. is investing a combined $750 million to expand its silica business significantly in North America with two major moves.

The firm has entered an agreement to acquire J.M. Huber Corp.'s silica business for $630 million, which will enhance Evonik's position in both North America and Asia.

In a separate move, the Germany-based specialty chemicals company disclosed that it will invest about $120 million to build a precipitated silica plant near Charleston, S.C., close to the production facilities of many large tire manufacturers. The project is forecast to be complete in 2018 and create 55 jobs.

"We see a continued high demand from the tire industry, especially in Europe and the U.S., supported by the trend toward fuel-saving tires," Johannes Ohmer, managing director of Evonik's Resource Efficiency segment and member of the Board of Management, said in an email interview.

"But other market segments also develop well; for example the coatings industry with its strong demand for matting agents across all regions. And last but not least, there is increasing demand from the consumer goods industry where Huber has showed a very resilient performance over the last years."

Huber Silica consists of about 4,000 employees and six facilities—two in the U.S., two in Europe, one in China and one in India. Ohmer added that both Evonik and Huber have been able to increase their respective silica business earnings significantly since 2008. The firm said the transaction should be complete by the second half of 2017, subject to the approval of relevant authorities.

Evonik projects Huber Silica to achieve nearly $300 million in sales for 2016 with an EBITDA of $60 million. The acquisition is projected to generate about $20 million in cost synergies by 2021 primarily in the areas of production, logistics and procurement in addition to the harmonization of the product portfolio.

"We are convinced that Huber Silica is not only an excellent fit for our existing silica business," Ohmer said. "The acquisition is for our enterprise, from a strategic point of view, also a further step to balance Evonik's portfolio and earnings profile. By purchasing Huber Silica, we invest in our second-largest earnings contributor within our portfolio, the high-growth and resilient silica business."

He added that the silica market has shown above-average annual growth of 4 to 6 percent. Furthermore, Evonik said there is very little overlap between the two companies as Huber's business focuses on applications in the consumer goods industry, mainly the dental sector.

On the other hand, Evonik's silica business has been focused on the industrial sector, specifically the tires and coatings industries.

The companies also complement one another geographically. Ohmer said Huber is stronger in the U.S., Evonik in Europe and both have sizable businesses in China and India, the two major markets in Asia-Pacific.

"The combination of the two portfolios creates significant new growth opportunities in more than 20 attractive customer industries," Ohmer said.

The Huber acquisition is the latest in a string of acquisitions this year by Evonik, including acquiring Air Products & Chemicals' Performance Materials division for $3.8 billion, a deal that closed Jan. 3, and French biotech firm Alkion Biopharma.

Air Products said in an earlier news release that its Performance Materials division generated $1.04 billion in revenue for the 12 months ending March 31, 2016. Epoxy curing agents account for 40 percent of its revenues, polyurethane additives 32 percent and specialty additives 28 percent. It employs 1,100 with production facilities in the U.S., Germany, England, China and Japan.

Freedonia Group Analyst Larry Catsonis said in a statement that he projects growth for precipitated silica in the U.S. at about 5 percent per year through 2019, adding that Huber Silica's consumer focused business is a strong complement for Evonik's more industrial-focused applications in tires and coatings.

The analyst added cosmetics and toiletries, which includes dental products such as Huber Silica's Zeodent-brand, represent the second largest market for specialty silicas. A number of toothpastes and gels now feature silica designed to whiten teeth.

But Catsonis said the biggest developments are projected to come from the tire market, where it is added to increase fuel efficiency.

"With these steps we will expand our business in the U.S. Profitable growth is and remains the integral part of our strategy," Ohmer said.

The new facility will be located at the Charleston International Manufacturing Center in Goose Creek, S.C., about 24 miles north of Charleston. Evonik also earlier confirmed that the facility will produce its Ultrasil-brand of rubber silica at the new facility—which are reinforcing fillers for the rubber industry. In addition to the tire industry, the product line is used in hoses, belts and rollers.

The South Carolina Department of Commerce approved a $500,000 Economic Development grant to assist with site preparation and construction of the project.

The production plant predominately will supply the tire industry. Evonik said the industry needs high-quality precipitated silica for producing fuel-efficient tires with good wet grip properties, which can save up to 8 percent fuel in comparison to conventional car tires. In North America, the demand for tires with reduced rolling resistance and the associated higher fuel efficiency is experiencing above-average growth.

"We are building the new plant near Charleston close to the production plants of large tire manufacturers," Ohmer said. "We want to provide global tire manufacturers with the supply security and flexibility they expect from us in local production. And in North America, the demand for tires with reduced rolling resistance is experiencing above-average growth. The proximity to our key customers in the tire industry was decisive in choosing South Carolina."

The Southeast U.S. has seen a wealth of tire growth as Goodyear, Michelin, Bridgestone Corp., Continental A.G., Pirelli Tire L.L.C., Toyo Tire & Rubber Co. Ltd. and Yokohama Tire Corp. all operate tire manufacturing plants in the region. Michelin, Bridgestone and Continental have manufacturing in South Carolina, with Giti Tire preparing to open a site in the state too. Trelleborg A.G. also operates a specialty agriculture tire facility in Spartanburg, S.C.

Hankook Tire Co. Ltd. has a Tennessee plant nearing completion and recently Continental disclosed plans construct a new plant in Mississippi.

Evonik operates a colloidal silica plant in Portland, Ore., and it produces fumed silica in Waterford, N.J., and Mobile, Ala. It also is constructing a silica production facility in Brazil that is expected to be complete by the end of 2017.

Headquartered in Essen, Evonik has operations in more than 100 countries with 33,500 employees. The specialty chemicals producer generated sales of about $14.9 billion in 2015.