News focus: Univar aims to raise up to $862.5m in IPO

Leading global chemical distribution firm to go public in the US, following competitor Brenntag’s IPO in Germany

SEEING AN opening in the initial public offering (IPO) market window, US chemical distributor Univar is taking a shot at raising up to $862.5m (€707.3m) by offering its shares on a US stock exchange.

The offering could boost the company’s financial flexibility, opening the door for major acquisitions as it goes head to head with Germany competitor Brenntag.

Both the company and its private equity firm owner, CVC Capital Partners, will offer stock in the IPO, with proceeds from the company’s share being used to repay debt, according to Univar’s S-1 registration statement filed with the US Securities and Exchange Commission.

The filing did not indicate the amounts to be offered by the company or CVC Capital Partners.

As of the end of March, Univar had $1.68bn in long-term debt and $114.7m in cash.

CREDIT UPGRADE POSSIBLE
Ratings agency Standard & Poor’s has placed Univar’s “B” credit rating on CreditWatch with positive implications based on the planned IPO.

“The expected debt reduction, together with a continuation of favorable operating results, could result in enough improvement to the financial risk profile to support a modest upgrade,” says S&P analyst Henry Fukuchi. “If debt is not reduced meaningfully or if the transaction is not completed as expected, an affirmation of the ratings is likely.”

The analyst points out that Univar is “highly leveraged,” with a debt ratio of 4.9 times earnings before interest, tax, depreciation and amortization (EBITDA) as of the end of March.

THIRD TIME’S THE CHARM?
“This will be the third time in the last 20 years that Univar is put on the market as a public company,” notes Marc Fermont, president of Swiss consultancy DistriConsult.

Univar was listed on the New York Stock Exchange from the mid-1980s until 1996, when it was bought by Netherlands storage and transportation firm Royal Pakhoed, which merged with another company and renamed itself Vopak. In 2002, Univar was spun off from Vopak and taken public in the Netherlands.

In April 2007, Univar, the leading chemical distributor in North America, bought Chemcentral, the fourth-largest, for $650m. Then the company was sold to CVC Capital Partners in October 2007 for €1.52bn.

CVC outbid BC Capital Partners, which owned the world’s largest chemical distribution firm Brenntag, by paying €53.50/share for Univar, representing a premium of 37% from the previous stock price.

BRENNTAG ALREADY PUBLIC
Brenntag itself went public via an IPO in Germany in late March, raising €747.5m ($935.2m). The company used €525m to reduce debt to €1.38bn, improving its debt ratio from 3.6 times operating EBITDA at the end of 2009, to 2.7 times operating EBITDA at the end of March 2010.

The IPO gave Brenntag more financial flexibility to fund its growth plan, which includes building up its network in Asia, and making acquisitions.

Brenntag generated €6.4bn ($8bn) in sales in 2009, making it the world’s largest chemical distributor with Univar number two.

Headquartered in Redmond, Washington, US, Univar is a global distributor of commodity and specialty chemicals.

In 2009, Univar generated $7.4bn in sales from the distribution of over 5.4m tonnes of chemicals. Sales were down 24% from 2008 levels, while volumes fell 17%. The company is the leading chemical distributor in the US and Canada, and has a No. 2 position in Europe, according to the filing.

Univar has a network of over 170 distribution facilities in North America, Europe, Asia-Pacific and Latin America, with additional sales offices in Eastern Europe, the Middle East and Africa.

Key products Univar distributes in the US include caustic soda, sodium hypochlorite, propylene glycol, isopropyl alcohol and performance polymers. In Europe, the company distributes solvents, glycols, inorganics and surfactants.

End-markets include paints and coatings (11% of 2009 sales), energy (10%), chemical manufacturing (9%), food (9%) and household and industrial cleaning (7%).

QUARON DEAL PENDING
Univar aims to boost its presence in Europe with its planned acquisition of Dutch chemical distributor Quaron for $130m. Quaron is a major distributor in the Netherlands, France and Belgium. The deal, announced in February, is expected to close in the third quarter.

However, DistriConsult’s Fermont expects only a partial EU clearance, as the French competition authorities take a hard look at the deal.

KEY FACTS
Univar at a glance

• Sales, 2009: $7.4bn (€5.9bn)
• Volumes: 5.4m tonnes
• Net debt: $1.57bn
• 170 distribution facilities
• No. 2 chemical distributor worldwide, with No. 1 position in North America and No. 2 position in Europe
• Key products: caustic soda, sodium hypochlorite, glycols, isopropyl alcohol, performance polymers and solvents