SEOUL, South Korea—A group of South Korean companies have reached an agreement to acquire MPM Holdings Inc., the parent company of global silicones supplier Momentive Performance Materials Inc., for about $3.1 billion.
The group, which consists of SJL Partners L.L.C., KCC Corp. and Wonik QnC Corp., will assume all of Momentive's net debt, pension and OPEB liabilities. Momentive reported total liabilities of $2.18 billion through six months of 2018, up a bit from $2.17 billion at the end of 2017.
"On behalf of KCC, Wonik and SJL, we are eager to begin this partnership with (Momentive CEO Jack Boss) and the Momentive team," Steve Lim, chairman and managing partner of SJL, representing the investor group, said in a statement.
"As a result of this highly strategic transaction the combined company will have superior capabilities to better compete in today's global market. The combination of Momentive's leading product portfolios, KCC and Wonik's reach into an expanded geographical market and SJL's solid investment backing and private equity expertise will further position the company for long-term success."
Under the terms of the agreement—which Momentive said has been unanimously approved by the Momentive, KCC and Wonik boards of directors; the investment committee of SJL; and by requisite vote of Momentive's stockholders—the investor group will assume Momentive's net debt obligations subject to minimum closing cash requirements of $250 million. Momentive stockholders will receive $32.50 for each share of common stock they own subject to minimum closing cash requirements.
Waterford, N.Y.-based Momentive develops and manufactures specialty silicones and silanes, as well as fused quartz and specialty ceramics products. The firm serves more than 4,000 customers in more than 100 countries with a global network of 24 production sites and 12 research and development facilities.
The company operates nine business units—silanes (including those for tire and rubber), specialty fluids, urethane additives, coatings, elastomers (liquid silicone rubber, heat cured rubber and custom compounds), electronics, sealants, ceramics and quartz.
Kent Furst—manager, polymers and materials, at the Freedonia Group—said he was surprised to see that Momentive had been acquired, but that the move makes a lot of sense. The company has lost a little bit of share in the last 10 years, but not a large amount.
The firm most recently posted second quarter sales of $704 million—up 19 percent against 2017—and net income of $39 million, an increase of $20 million compared to the previous period.
Both figures are up for the six-month period as well, sales to $1.36 billion from $1.14 billion and net income at $59 million compared to a net loss of $11 million.
"They had a very successful 2017, like most of the rest of the industry did, but also their sales in 2018 have been pretty good," Furst said. "The business still seems like a good one, or one that has potential. It has some unique product lines and urethane additives and silanes that are competitive. It doesn't surprise me a whole lot that they would be a desirable target for someone."
The announcement was a result of a thoughtful and comprehensive review of the strategic growth and value creation opportunities available to Momentive, Boss said in a statement.
Momentive traces its roots back to the 1940s and was originally General Electric's silicones business, spun off in 2006. It has gone through private equity ownership, mergers, labor issues, bankruptcy and two attempted IPOs, said Furst.
SJL is a private equity investment manager focused on partnership investments with market-leading strategic companies to support their organic and inorganic growth, including bolt-on acquisitions. SJL's portfolio includes investment into Celltrion Holdings—South Korea's leading biosimilar drug manufacturer—and Vigevano, one of the earliest distributors of leading fashion brands and leather goods in South Korea.
Wonik QnC is based in Gumi, South Korea, and produces quartz and ceramic wares used in the production of semiconductor wafers. The firm's quartz division provides quartz used in the production of semiconductor IC's, as well as products used in the production of semiconductors, LCDs, LEDs and solar cells. Its ceramics division offers ceramics materials, including aluminum nitride, silicon carbide and boron nitride composite.
Based in Seoul, KCC Corp. is a leading chemicals manufacturer in South Korea, specializing in paints, building materials and specialty materials. It also engages in the silicones business for developing products in the fields of specialized paints and precision chemical engineering.
The companies involved in acquiring Momentive seem like a good fit, Furst said. Wonik's quartz business fits Momentive's, and KCC, as one of the larger non-Chinese mid-tier silicone suppliers, seems like it would naturally pair with Momentive's offerings.
"The thing about the industry is, because it's so concentrated with five companies controlling three-fourths of the market, if KCC wanted to become a major player in silicones, really the only way to do it is through an acquisition like this," Furst said.
The acquisition probably will not have a huge impact on the larger silicone market, Furst said. Though KCC is large for a medium-sized player, in the grand scheme of the larger market, it isn't going to change the way the market moves with this deal. Momentive was focused mostly on the North American market, with more than half its sales coming from both North America and Europe. The company already had some presence in Asia, which is expanded by KCC, but the larger market landscape won't see a major change.
"It's not going to propel the combined company to have a much larger presence than Momentive already had," Furst said. "It'll extend their reach in Asia but not dramatically so. In terms of the market overall, it's not going to have an enormous effect."
The deal means increased market share and greater exposure for the company's specialty products, Boss said.
"We believe this is a great outcome for all of our stakeholders, delivering maximum value to our stockholders while positioning Momentive for long-term growth and future job creation that will benefit our talented employees across the globe, customers and suppliers," Boss said. "The transaction will not only allow our silicones and quartz businesses to benefit from KCC and Wonik's industry expertise, but will also further enhance Momentive's global leadership position by expanding our portfolio of products, broadening our geographic reach and strengthening our financial position."