Maleic Anhydride • 1,4-Butanediol

5TH AUGUST 2019

MALEIC ANHYDRIDE MARKETS A

WHIRL OF M&A ACTIVITY
CONTACT: PHILIPPA DAVIES
Email: philippa.davies@orbichem.com Follow us on

The maleic anhydride market has been caught in a storm of investment activity – is
the dust now starting to settle?

T
he maleic market is watching and waiting to see how M&A activity progresses as the economies
of all major regions are now off the boil. Some faltering in the European and US economies
and a hangover from the US/China trade wars is dampening downstream demand in the UPR
sector, the biggest downstream market for maleic. UPR production remained sluggish in China as
well. These negative signs may add up to a reduction in investment activity as well as a slow-down
in petrochemical sales in general and in maleic sales in particular. So far, maleic demand has been
quite “steady, as she goes” and the profitability of the sector is still strong, particularly in North
America where the n-butane price remains about $100/ton lower than in the rest of the world. But
this cost advantage is subject to fluctuation and with the other signs very uncertain, financial as well
as market activity is expected to slow down. On the other side of this argument, with the first interest
rate cut by the US Federal Reserve in 11 years announced on 31 July and oil prices low, investor
interest in potentially profitable safe havens is likely to remain strong – and the maleic industry may
well stand to benefit from this.

The newest news in the maleic markets is the change in the sale price and terms of the Ashland
composites business and its Marl, Germany, BDO facility to Ineos Enterprises. The purchase price
went down to $1.015 billion from $1.1 billion and Ashland is to retain the maleic plant at Neal,
West Virginia and the maleic business as well as any proceeds from the sale of these assets and
businesses. This suggests a valuation of the maleic asset and business at $85 million. The maleic
business has an annual revenue of around $75 million, the company reported earlier. The sale of
the composites and Marl BDO business is expected to close in late summer 2019, according to the
latest press release. This news was nestled in the Preliminary Results for Third Quarter Fiscal on
30 July. The report states that the decision to change the terms around the maleic business came
out of ongoing discussions with the US Federal Trade Commission. Huntsman has announced it
will buy the remaining part of its joint venture Sasol Huntsman maleic business in Europe. This will
have significant ramifications in the European market, most notably that it will allow Huntsman to
optimize its regional businesses.

Earlier in July, the proposed acquisition of Ashland’s Composites and related businesses by Ineos
Enterprises was partly scuppered by concerns raised by competitors in the UPR market over anti-
trust issues that were investigated by the Federal Trade Commission in Washington. After several
weeks of investigation, an announcement was released by Ashland on 8 July to say that the deal
was to be amended as regards the maleic portion of the transaction. Originally, the purchase price
was to remain unchanged at $1.1 billion. Ashland would retain the plant but intended to sell it,
the announcement said, with the proceeds to go to Ineos, minus the costs related to the sale. The
update on 30 July changes the valuation and the terms of the agreement.

Ineos Enterprises had already bought into the North American UPR ingredients market with the
purchase of the Flint Hills Resources maleic anhydride, trimellitic anhydride and isophthalic acid
businesses and plants at Joliet, Illinois. This deal closed quite quickly on 1 December 2018, after
being announced on 26 September 2018. But the purchase of another maleic plant in North
America by Ineos was problematic, as it turned out.
MALEIC ANHYDRIDE MARKETS A WHIRL OF M&A ACTIVITY

Bartek Ingredients’ Canadian maleic and malic and fumaric business was also recently purchased by private equity firm,
Torquest Partners, for an undisclosed sum. After the acquisition, Bartek was in a position to make several investment
decisions. The company announced in July its decision to buy a new 50 million lb/year (25,000 ton/year) reactor
from the German manufacturer, MAN Energy Solutions, based in Deggendorf, Germany. The company is expected
to take delivery of the reactor in the fourth quarter of 2020 and it should be running with commercial production by
the second quarter of 2021. The decision to expand the company’s maleic capacity is driven by increasing demand
for malic and fumaric acid. Bartek has already announced expansions on these food acids and new maleic capacity
will provide support for this new downstream capacity, as well as for further malic and fumaric expansions down the
road. The new reactor will be a welcome addition to the North American market, where new capacity is expected to
be required by around 2023.

So, what’s next for M&A news in the maleic anhydride market? A buyer for the Ashland maleic anhydride facility? A
few possible contenders come to mind. But whoever the buyer is, it would need to satisfy regulatory authorities. Will
that mean that a purchaser from the industry is not in the running? This is not yet clear. A private equity buyer was
always considered a likely outcome at the beginning of the process of Ashland’s sale of its composites businesses. Now
that only the maleic remains to be spun-off, this seems still a possible outcome. Producers of other downstream products
(not UPR) may be more eligible to court Ashland but this is far from definitive.

The change in the economic context in which these deals are taking place also plays a key role in upcoming investment
decisions. BASF’s revision of its outlook for full year 2019 downward in mid-July reflected anecdotal and hard evidence
from other chemical and derivatives companies, including those involved in the maleic anhydride business. BASF
reported sales down 4% for the second quarter of 2019, which echoed Ashland’s own 4% drop in sales year-over-
year in its third quarter fiscal 2019 report (released 30 July). BASF cited the big drop in automotive sales, which were
down 6% globally in the first half of 2019 and down 13% in China over the same period. The US/China trade war
was ramping up in early August, as well, as Trump added a new 10% tariff on imports of a variety of Chinese goods
and China responded by allowing the yuan to weaken. This brave new world will be a challenging one for all comers.
Maleic trade and M & A activity will not stop; but the fast pace of change can be expected to abate as all signs seem
to point downward.

Tecnon OrbiChem 5TH AUGUST 2019

MALEIC ANHYDRIDE MARKETS A WHIRL OF M&A ACTIVITY

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Philippa Davies
Business Manager – Maleic Anhydride, Acrylic Acid & Acrylates, Polyurethanes &
Intermediates, Bio-Materials, Olefins

Phone: +44 207 924 3955

philippa.davies@orbichem.com

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Tecnon OrbiChem 5TH AUGUST 2019