Kraton Polymers planning IPO

ERJ staff report (PN)

Houston, Texas -- Kraton Polymers LLC - one of the world's largest styrenic block copolymer makers - is going public.

Houston-based Kraton announced the move in an Oct. 1 news release, but no date was listed for the first public offering of stock in the company.

In the release, officials said they expect to use the net proceeds of the stock offering to repay a portion of its senior secured credit facility, and use the remaining net proceeds for general corporate purposes, including the funding of capital expenditures.

Kraton posted sales of almost $1.2 billion in 2008, up 10 percent vs. the prior year. The firm's Kraton-brand SBCs are used in a wide range of products ranging from “soft-touch” handles to disposable diapers to asphalt.

Kraton originally was a unit of Shell Chemical Co. It has been owned since 2003 by TPG Capital LP, a private equity firm based in Fort Worth, Texas, and New York financial firm J.P. Morgan Partners LLC.

Kraton employs about 800 and operates six plants worldwide. Its main plant is in Belpre, Ohio; with additional plants in Germany, France, the Netherlands and Brazil, along with a joint venture plant in Japan. In December, Kraton will close a plant in Pernis, the Netherlands.

In a prospectus filed with the Securities and Exchange Commission, Kraton officials said they believe the firm is the world's largest SBC maker, with a market share of 34 percent. That share, officials said, is three times larger than Kraton's nearest competitor. In the SBC field, Kraton holds number one end-market positions in paving and roofing; adhesives, sealants and coatings; and advanced materials, officials added.

Kraton's product mix includes 800 products sold to more than 700 customers in over 60 countries worldwide. The firm claims to be the only SBC producer with manufacturing and service capabilities on four continents.

Since January 2008, Kraton has been awarded 153 patents for new products and applications, which officials believe will allow the firm to drive volume and revenue growth and expand its margins.

In addition to SBCs, officials said they see growth potential in Kraton's line of isoprene rubber latex (IRL), a replacement for natural rubber latex. IRL is used in surgical gloves and other similar applications.

Most recently, Kraton opened a new innovation center in Houston. The 55,000 square-foot Kraton Innovation Center opened in June. It employs 80 and will allow the firm to cut its time from conceptualization to commercialization by 50 percent, officials said earlier this year. Kraton also is working to commercialize its new Nexar-brand SBCs for high-performance breathable fabrics, water transport, filtration and separation uses.

But - like many plastics and chemicals firms - Kraton has endured some financial struggles in recent years. It lost more than $75 million combined in 2006 and 2007 before posting a $28 million profit in 2008.

The first half of 2009 proved challenging as well, with Kraton losing almost $21 million as sales fell almost 30 percent to $411 million, when compared to the first half of 2008. The firm's sales volume in pounds also fell 31 percent to 260 million pounds in the first half.

Kraton officials cited weakness in demand for commercial packaging tape applications, uncertainty around the impact of the U.S. government economic stimulus spending and generally poor global economic conditions as reasons for the company's first-half performance.

Longtime industry consultant Bob Eller said in an Oct. 2 phone interview that Kraton has taken steps to improve its business in recent years, including maximizing its R&D supply pipeline and emphasizing higher-value specialty products.

But Eller - president of Robert Eller Associates in Akron, Ohio - added that he's not sure the time is right for a company like Kraton to make an IPO.

“It depends on whether they have the patience to wait the market out,” he said. “And it's a question if specialties can drive up profitability.”

From Tire Business (A Crain publication)

Press release from Kraton