Eastman to Strengthen its Global Presence in Emerging Markets with Solutia Acquisition

KINGSPORT, Tenn. and ST. LOUIS, Mo. -- Eastman Chemical Company and Solutia Inc. have entered into a definitive agreement, under which Eastman will acquire Solutia, a global leader in performance materials and specialty chemicals. Under the terms of the agreement, Solutia stockholders will receive $22.00 in cash and 0.12 shares of Eastman common stock for each share of Solutia common stock. Based on the previous days closing prices, Solutia shareholders will receive cash and stock valued at $27.65 per Solutia common share, representing a premium of 42 percent and a total transaction value of approximately $4.7 billion, including the assumption of Solutias debt.

"The acquisition of Solutia is a significant step in our growth strategy and one that I am confident will strengthen Eastman as a top-tier specialty chemical company with strong, stable margins," said Jim Rogers, Chairman and Chief Executive Officer of Eastman. "The addition of Solutia will broaden our geographic reach into emerging geographies, particularly Asia Pacific, establish a powerful combined platform with extensive organic growth opportunities, and expand our portfolio of sustainable products, all of which are consistent with our growth strategy.

"This transaction is also expected to deliver immediate value to our stockholders in the form of accretion and strong cash generation, as well as create potential upside through the combination of two leading global chemical companies," said Rogers.

"This complementary transaction will accelerate the growth of our businesses around the world. The shared commitment to innovation, quality and technical service will allow us to better serve our customers and creates opportunity for our employees around the globe," said Jeffry N. Quinn, Chairman, President and Chief Executive Officer of Solutia. "This transaction provides Solutias shareholders with immediate value and an attractive premium, as well as the opportunity to benefit from the future prospects of a leading global chemicals producer with the financial strength, a diversified mix of premium products, and the geographic footprint to capitalize on long-term growth opportunities."

"I commend the excellent management team and employees of Solutia. Over the past several years, Solutia has transformed itself into a financially strong, innovative performance materials and specialty chemicals company, with enviable market leading positions in virtually every market it serves," added Rogers. "That, in addition to both companies success integrating prior acquisitions, gives me confidence we will achieve a smooth transition. We look forward to welcoming Solutia employees to Eastman."

Solutia a Strong, Strategic Fit

Eastman and Solutia share several key fundamentals, such as complementary technologies and business capabilities, a polymer science backbone, similar operating philosophies and a high performance culture. In addition, the overlap of key end-markets is expected to provide opportunities for growth.

This acquisition is also a significant step in Eastmans strategy to extend its global presence in emerging markets. In particular, it should significantly accelerate Eastmans growth efforts and offer excellent growth opportunities in Asia Pacific. By leveraging infrastructure in the region, Eastman expects to have a compound annual growth rate in Asia Pacific approaching 10 percent for the next several years.

Transaction Expected to Deliver Strong Earnings Growth and Significant Cost and Revenue Synergies

Eastman expects the transaction to be immediately accretive to earnings, excluding acquisition-related costs and charges. After giving effect to the acquisition of Solutia, including expected cost synergies, Eastman expects 2012 EPS to be approximately $5 excluding acquisition-related costs and charges. Eastman is also increasing its 2013 EPS expectation to greater than $6.

Eastman has identified annual cost synergies of approximately $100 million that are expected to be achieved by year-end 2013. Key areas of value creation include the reduction of corporate costs, raw material synergies, and improved manufacturing and supply chain processes.

Further, Eastman expects to realize significant tax benefits from Solutias historical net operating losses and other tax attributes that are expected to contribute to free cash flow (defined as cash from operations minus capital expenditures and dividends) of approximately $1.0 billion through 2013.

Eastman also recognizes the potential for meaningful revenue synergies by leveraging both companies technology and business capabilities and end-market overlaps, particularly in automotive and architectural.

Attractive Capital Structure, Benefiting from Low Interest Rate Environment

Eastman intends to finance the cash portion of the purchase price through a combination of cash on hand and debt. Debt financing has been committed by Citi and Barclays Capital which are acting as financial advisors to Eastman on the transaction, and Jones Day is acting as legal counsel. Eastmans management and Board of Directors remain committed to maintaining an investment grade credit rating and to its current annual dividend rate of $1.04 per share.

Deutsche Bank Securities Inc. and Moelis & Company LLC acted as financial advisors to Solutia on this transaction. Perella Weinberg Partners LP acted as financial advisors to Solutias Board of Directors. In addition, the Valence Group, LLC conducted an independent evaluation of Solutias long range plan for Solutias Board of Directors. Kirkland & Ellis LLP acted as legal counsel to Solutia.

The transaction, which was approved by the Boards of Directors of both companies, remains subject to approval by Solutias shareholders and receipt of required regulatory approvals as well as other customary closing conditions. The transaction is expected to close in mid-2012.