Shares of Huntsman (HUN 0.90%) climbed more than 17% on Thursday morning after the company said it has a deal to sell a pair of businesses for more than $2 billion. The transaction continues the chemical giant's push to focus on downstream and specialty businesses and should provide the company with more balance sheet flexibility.
Huntsman has been actively looking to reshape its portfolio, last month signing a deal to buy out its partner in a European joint venture. Its latest move is the signing of a definitive agreement to sell its chemicals intermediates businesses and its surfactants businesses to Indorama Ventures for a combined $2 billion in cash, plus the transfer of about $76 million in underfunded pension liabilities.
The deal includes Huntsman manufacturing facilities in Texas, India, and Australia and is valued at about 8 times EBITDA.
Huntsman is shifting its focus at a time when even the largest chemical manufacturers are transitioning away from a reliance on boom/bust commodity cycles and toward more reliable and higher-margin refined products. In a statement, Peter Huntsman, the seller's chairman and CEO, called the transaction "another milestone in our stated strategy to focus more on our downstream and specialty businesses where we will generate more stable margins and consistent, strong free cash flow."
Those downstream products were the star performers in Huntsman's second-quarter earnings report, released July 30, in which the company generated $240 million in free cash flow and $0.63 per share in earnings despite what Huntsman called "challenging economic conditions."
The divestiture helps position Huntsman for the long term, but it should also provide investors a near-term spark. Huntsman said it intends to accelerate share repurchases under its existing $1 billion authorization after the close of the deal. The added cash should provide a counterweight to the company's nearly $3 billion in debt and give it more flexibility to authorize future repurchases or seek out additional acquisitions without sacrificing its credit rating.