Celanese sees big opportunity in global autos, EVs with DuPont M&M deal

Joseph Chang

18-Feb-2022

NEW YORK (ICIS)–Celanese is making a bigger bet on automotive and electric vehicles (EVs) with its planned $11bn acquisition of most of DuPont’s Mobility & Materials (M&M) business, essentially doubling its Engineered Materials (EM) business.

Celanese to acquire most of DuPont’s M&M business for $11bn.
Celanese sees deal as way to further expand into autos and EVs.
Acquisition doubles Celanese’s Engineered Materials segment.

More than half of the $3.8bn in estimated 2022 sales for the DuPont businesses being acquired go into automotive, and on a geographic basis, more than half of sales are in Asia, including almost a quarter in China.

Celanese’s new combined EM segment will have an estimated $7.4bn in sales and $1.8bn (around $900m from DuPont M&M) in earnings before interest, tax, depreciation and amortisation (EBITDA).

“It is a continuation of [Celanese’s] strategy to bolster its EM business while making the more commodity Acetyls business a smaller amount of the total pie,” said Fermium Research analyst Frank Mitsch in a research note.

The deal “establishes Celanese as offering the broadest and most differentiated EM portfolio globally” and also enhances the segment’s geographic footprint, especially in Asia which had been diminished by the $1.6bn divestiture of its 45% interest in the PolyPlastics joint venture to Japan’s Daicel in October 2020, he noted.

“Within autos, this acquisition will increase Celanese’s exposure to EVs, and auto will remain the largest EM end market,” said Michael Sison, analyst at Wells Fargo, in a research note.

“The shift towards EVs is expected to drive annual growth of 4% for the acquired polymer families (or 450,000 tonnes/year of incremental global demand for these polymers from 2022 to 2027), though this could be as much as 6% if Celanese is able to increase penetration in line with its project pipeline model,” he added.

The deal brings complementary chemistries to Celanese’s Engineered Materials segment as well with DuPont M&M’s expertise in nylon, specialty nylons, polyesters and elastomers. Celanese is big in polyacetal (POM), elastomers from the Santoprene acquisition from ExxonMobil, and ultra-high molecular weight polyethylene (UHMW-PE), along with nylon and polyesters.

Celanese estimates EVs use about the same amount of DuPont M&M’s polymers per vehicle – 26kg – as traditional internal combustion engines (ICEs), while hybrid EVs use about 28kg per vehicle.

As the number of global EV sales are expected to grow by a compounded annual rate of 32% from 2022 to 2027 and hybrid EVs by 17%, more than making up for the estimated 3%/year decline in ICE vehicle sales (leading to overall auto unit sales growth of 4%/year), the acquired business should benefit from the EV transition.

“A portion of DuPont’s portfolio is in more traditional under-the-hood applications [but] we feel really confident that with our commercial model and our reach into the OEMs and the tiers, we’ll make that transition very successfully,” said Tom Kelly, senior vice president, Engineered Materials at Celanese, on the deal conference call.

The acquired DuPont M&M assets also brings Celanese much greater exposure to Asia.

“The Asia presence of this business is really strong. As we overlay our base business, we think that’s a real opportunity to further optimise in that region of the world,” said Celanese CFO Richardson.

“This acquisition really accelerates our presence into Asia. The M&M business has really great customer relationships we think we can leverage,” he added.

Wells Fargo’s Sison notes the acquired business’ strong relationships in Japan and South Korea, which is positive, especially for automotive.

BRAND EQUITY VALUE
Much like ExxonMobil’s highly recognisable brand name Santoprene elastomers franchise acquired by Celanese for $1.15bn in December 2021 brought benefits, DuPont brands such as Zytel (nylons), Crastin (polybutylene terephthalate), Rynite (polyethylene terephthalate) and Hytrel (elastomers) should also raise the profile of its offerings.

“Customers ask for the brand. They don’t ask for the chemical name – they ask for the DuPont brand,” said Scott Richardson, chief financial officer of Celanese.

“When you take that brand equity and put that onto the way that we drive projects and the deep customer relationships that we have, we think bringing that together with the legacy Celanese polymers and Santoprene brand we acquired really gives us good revenue synergy optimisation opportunities,” he added.

Along with projected cost synergies of $275m-350m by year three from manufacturing utilisation and scale and back integration into polymerisation among others, Celanese also projects revenue synergies of $125m-150m by year four of the completed deal – much of it from leveraging Celanese’s project pipeline model where it works to improve win rates with customers.

The $11bn purchase price for most of DuPont’s M&M business represents a multiple of around 14x 2021 EBITDA of about $800m, and 12x estimated 2022 EBITDA of about $900m.

Celanese sees 2022 EBITDA growth in the assets being acquired from a recovery in auto builds as well as easing of raw material and logistics constraints over the course of the year.

With the DuPont M&M deal, Celanese’s EM segment’s share of entire company EBITDA in 2022 would rise from 35%, to 56% if the $450m in synergies were included. Celanese’s other segments are Acetyl Chain and Acetate Tow.

Insight article by Joseph Chang

https://www.icis.com/explore/resources/news/2022/02/18/10735659/insight-celanese-sees-big-opportunity-in-global-autos-evs-with-dupont-m-amp-m-deal/

February 18, 2022

DOJ & The Supply Chain

DOJ expands scrutiny of possible supply-chain profiteers

Trucking, warehousing, 3PLs could be in antitrust division’s crosshairs

John Gallagher, Washington Correspondent Follow on Twitter Thursday, February 17, 2022 2 minutes read

Trucking could now be in DOJ crosshairs. (Photo: Jim Allen/FreightWaves)

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The U.S. Department of Justice is now targeting a wider swath of transportation companies that it deems may be using supply chain disruption to gouge customers

The initiative, which DOJ announced Thursday, broadens the scope of the Biden administration’s heightened scrutiny of anticompetitive behavior in various industry segments, including transportation.

“The lingering challenge of supply chain disruptions from the COVID-19 pandemic has created an opportunity for criminals to fix prices and overcharge customers,” said Assistant Director Luis Quesada of the FBI’s Criminal Investigative Division. “The FBI and our law enforcement partners will continue to collaborate and investigate schemes that violate our antitrust laws and stifle our economic recovery.”

As part of the initiative, DOJ’s Antitrust Division is prioritizing existing investigations where competitors may be exploiting supply chain disruptions for profit and is “undertaking measures to proactively investigate collusion in industries particularly affected” by supply chain disruptions, the agency warned.

“For those who seek to exploit supply chain disruptions for their own illicit gain, the Antitrust Division, along with the FBI, will investigate and prosecute criminal violations of the antitrust laws, including agreements between individuals and businesses to fix prices or wages, rig bids or allocate markets.”

Up to now, DOJ’s stepped-up oversight of anticompetitive behavior in the transportation sector has focused on the maritime industry and railroads, where there has been evidence that the relatively few players have wielded their market power to raise rates.

In July, DOJ and the Federal Maritime Commission signed a first-time agreement to sharpen economic oversight of foreign ocean carriers serving in the U.S. international container trades. The agreement came days after President Joe Biden signed an executive order aimed at curbing potential anticompetitive behavior among 72 industries, including among ocean carriers and freight railroads.

But Thursday’s announcement should now put companies involved with trucking, warehousing, 3PLs and last-mile delivery on notice as well, according to one trade expert.

“Certainly the focus here is on other elements of the supply chain that haven’t gotten as much attention as ocean carriers and marine terminals but are needed to get cargo to and from inland destinations,” Gerald Morrissey, a partner with the law firm Holland & Knight, told FreightWaves.

“This is really saying that any company in the supply chain, particularly those that are not subject to some form of antitrust immunity [such as ocean carriers and marine terminals] could be in the crosshairs for potential complaints by customers or competitors with this increased focus from DOJ.”

As part of the initiative, the Antitrust Division has formed a working group with the Australian Competition and Consumer Commission, the Canadian Competition Bureau, the New Zealand Commerce Commission, and the United Kingdom Competition and Markets Authority, focusing on collusion in global supply chains.

“The working group is developing and sharing intelligence, utilizing existing international cooperation tools, to detect and combat collusive schemes,” DOJ stated.

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