Proposed joint venture between Celanese and Blackstone

August 2017 | DEALFRONT | PRIVATE EQUITY & VENTURE CAPITAL

Financier Worldwide Magazine

August 2017 Issue

Specialty material company Celanese Corporation and private equity firm Blackstone Group have announced that they are to form a cellulose acetate tow joint venture (JV) by combining their respective units and creating a global acetate tow leader.

According to terms of the agreement, Celanese will own 70 percent of the joint venture, Blackstone the remaining 30 percent. The companies have secured commitments of $2.2bn in debt for the JV. Upon closure of the deal, Celanese will receive $1.6bn in cash. The company’s management plans to use $800m of the dividend to reduce Celanese’s debt, with the remainder going to share repurchases and growth initiatives.

The joint venture will have eight manufacturing facilities and three existing JV sites. The new company is expected to generate 2017 annual pro forma revenue of approximately $1.3bn. The company will employ around 2400 people across its locations and will account for more than 25 percent of the roughly 800,000 metric tons per year of global acetate tow capacity.

Celanese will contribute its Cellulose Derivatives unit, including its equity interest in existing JVs with China National Tobacco Corporation to the JV, Blackstone will contribute its Rhodia Acetow unit that it purchased from Solvay in 2016 for around €1bn.

Celanese has long been a major force in the acetate tow industry; it also has a particularly strong presence in China, where it operates three JVs. The company has celebrated the launch of the JV, noting that it is an opportunity for Celanese to boost its global footprint while allowing it to focus more resources on its higher-growth businesses, according to a statement.

The creation of the JV is still subject to regulatory clearances and customary closing conditions. Upon its completion, the JV will be governed by a board consisting of three directors appointed by Celanese and two by Blackstone.

“This is an exciting opportunity for Celanese to partner with Blackstone in a way that creates significant value for all stakeholders. The combination of these tow assets will enhance our ability to serve customers more efficiently and reliably from a global production footprint while also creating growth opportunities for employees,” Mark Rohr, Celanese chairman and CEO, said in a statement. “This transaction gives us the opportunity to partially monetise cellulose derivatives and reallocate significant capital to higher growth businesses within Celanese to accelerate our growth momentum.”

Lionel Assant, head of private equity Europe at Blackstone, said: “The combination of these two companies provides an excellent opportunity to create a new, international business focused on innovation and growth to the benefit of its customers and employees. We are excited to work with Celanese on this strategic development.”

The decision to enter a JV now is a notable one for both organisations. The acetate tow business, which provides a product that is derived from wood and used in a variety of products like cigarette filters, felt marker tips and medical devices, is still a profitable industry, but it is coming under increasing pressure from changing tastes. With people smoking less, particularly in Europe, the US and Japan, and with increased competition from Chinese organisations which are increasing domestic acetate tow production, imports of the material into China are likely to decrease. Indeed, Celanese estimates that China’s acetate tow imports in 2017 will be only a quarter of what they were five years ago, with domestic producers accounting for the rest of the market.

Celanese and Blackstone believe that they will be able to save considerable costs by optimising supply chains and through the joint procurement of raw materials, energy, equipment and other services.

Richard Summerfield