Mitsubishi Chemical Holdings to Acquire Mitsubishi Rayon Company for $2.24 Billion

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Researched by Industrial Info Resources (Sugar Land, Texas)--Mitsubishi Chemical Holdings Corporation (TYO:4188) (Tokyo, Japan), Japan's largest chemicals producer, is likely to acquire beleaguered resins maker Mitsubishi Rayon Company (TYO:3404) (Tokyo) for $2.24 billion. In February, Mitsubishi Chemicals had offered to pay $4.26 for every share of Mitsubishi Rayon. The move is expected to consolidate and strengthen the Japanese chemicals sector, which is reeling under the impact of the global financial meltdown. Both companies are expected to hold separate board meetings to discuss the deal and announce the decision shortly.

Industry analysts have observed that if the deal comes through, Mitsubishi Rayon will become a fully owned subsidiary of Mitsubishi Chemicals. The companies will also seek mandatory approvals from foreign anti-trust agencies and the Japanese regulatory authority. On receiving the clearances, Mitsubishi Chemicals will formally tender an offer that is expected to be completed by March 2010. Subsequently, any outstanding Mitsubishi Rayon shares, not owned by Mitsubishi Chemicals at the time of the tender, will be converted into shares of the holding company through the stock swap process. This will be followed by de-listing of Mitsubishi Rayon Company from the stock exchange.

Sources have indicated that stiff competition from chemical producers in China and the Middle East is the primary reason for Mitsubishi Rayon's acquisition. It became imperative for the company to look at large-scale expansion and focus on high performance products. The commodity range of petrochemicals faces the biggest competition from the Middle East and China. The combined entity will aim to reduce the scale of this business division. In May, Mitsubishi Rayon became the biggest acrylic resins manufacturer in the world, after the $1.6 billion acquisition of the Lucite International Group Limited (Southampton, England). Analysts indicate that this takeover made a big financial dent on the company's resources. The Mitsubishi Chemicals acquisition is expected to assist both companies in exploring larger global markets and improving Mitsubishi Rayon's financial standing.

Mitsubishi Chemicals is expected to take control of Mitsubishi Rayon's composite materials, water treatment and carbon fiber divisions. Other businesses include optical fiber, coating and additives divisions. Officials are optimistic that the combined entity will take advantage of business synergies in these divisions and drive toward price competitiveness and value business. Integration and synergy in combining common functionalities in group companies, procurement, and logistics is expected to yield huge cost savings. Before the economic downturn, Mitsubishi Rayon, the largest methyl methacrylate producer in the world, was more profitable than Mitsubishi Chemicals. The combined entity is expected to become the sixth-largest integrated chemicals group in the world, with total annual sales in excess of $39.32 billion.

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