PolyOne moves forward on purchase, but weighs whether to cancel deal

By Devika Patel

Knoxville, Tenn., March 20 – PolyOne Corp. plans to keep an eye on the current market situation and evaluate whether it plans to complete a previously announced acquisition, but will move forward to meet closing conditions despite the uncertain environment.

The company will, however, put off taking on debt for the deal until conditions look more favorable and it makes sense to proceed with the transaction.

On Dec. 19, 2019, PolyOne said that it had entered into an agreement with Clariant to purchase its global color and additive masterbatch business and an agreement with Clariant Chemicals India Ltd. to purchase its color and additive masterbatch business, for a combined net purchase price of $1.45 billion.

Closing was scheduled for the middle of 2020.

“We are certainly in unprecedented territory with the rapid spread of the coronavirus and there is fear of a resulting global recession,” chairman, president and chief executive officer Robert M. Patterson said on the company’s investor conference call on Thursday.

“That is known. What is not known is how long will this last or how significant will it be, and that is really important as time is to our benefit,” Patterson said.

The company is comfortable with its current cash position.

“We are in a very good place with respect to cash on the balance sheet,” Patterson said.

“Now, as an investor, you may be saying to yourself, ‘Well, that’s great, but you’re just going to spend it on the Clariant transaction, so what good does it do us?’ and that is what I want to address now,” Patterson said.

The CEO said that what is going on in the world right now is not lost on the company.

“There is tremendous uncertainty about almost everything,” Patterson said.

The company won’t proceed with the deal if things look bleak, but management has plenty of time to decide on its final course, since the earliest the deal could close is June 2.

“With respect to the Clariant transaction, I understand there is concern about whether or not we would do this deal under any conditions, and the answer to that is no,” Patterson said.

“Fortunately, we don’t need to make that call right now, but we will if we have to.

Between now and the earliest closing date, Patterson said he expects to learn a lot more about the spread and the effect of the coronavirus and its impact on the economy.

Despite the uncertainty, management intends to proceed as if the deal will close, since it’s a good deal.

“I believe returning to normalcy is not a matter of if, but when,” Patterson said.

“Accordingly, we need to stay the course and keep our options open, which includes working towards satisfying the closing conditions of the Clariant transaction.

“Why?

“Because this acquisition makes sense,” Patterson said.

Regardless, the company is monitoring the situation and plans to put off issuing debt for the deal until it is certain it will proceed with the acquisitions.

“That doesn’t mean we ignore what is going on and proceed under any or all circumstances,” Patterson said.

“We will not do that.

As far as leverage, the company has been experiencing higher EBITDA due to its products being in demand during the pandemic and currently anticipates that leverage will not change dramatically.

“One of the things that will of course be on investors’ minds is leverage, the underlying performance of the business, and we’ll certainly learn more about that with the passage of time,” Patterson said.

“Leverage is ultimately determined by the underlying EBITDA of the business.

“In the first quarter, our EBITDA went up.

“Now, I’m not saying that with a blind eye to what could happen for the balance of the year, given where things are in Europe and the Americas, but when I look at the markets that we serve, healthcare, personal care and food and beverage packaging, I think that there’s certainly a lot of opportunity to continue to sustain that level of EBITDA right now,” Patterson said.

The company expects to end the first quarter with $1.25 billion of cash and approximately $300 million of additional liquidity from its revolving line of credit, with $1.2 billion of debt.

PolyOne is an Avon Lake, Ohio-based provider of specialized polymer materials, services and solutions.

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