Specialty chemical company Albemarle Corporation ALB 0.07% last week announced the closure of its $6.2 billion acquisition of Rockwell Holdings Inc. As of January 2015, Rockwell Holdings is now a subsidiary of Albemarle, and management believes the new Albemarle is better positioned to grow in the future.
What Rockwell Brings To The Table
Nearly 90 percent of Rockwell’s 2013 sales came from two areas: lithium and surface treatment. On the lithium end, Rockwell has access to major lithium reserves in Australia and Chile. Chile is a particularly low-cost source of lithium, because of the high quality of its brine.
Rockwell’s lithium is used in industries such as pharmaceuticals, agriculture, batteries and plastics, and the company’s customers include Bayer AG, Syngenta AG, DSM and Samsung.
More than half of Rockwell’s business is related to surface treatments. Albemarle saw opportunity in Rockwell’s surface treatment business because of its global presence, its innovative products and its strong free cash flow. Rockwell’s surface treatments are used in industries such as automotive, industrials and aerospace, and the company’s customers include Airbus, Ford Motor Company, Daimler and Renault Nissan.
Benefits Of The Merger
According to a 2014 presentation to shareholders, Albemarle management believes that the acquisition of Rockwell will produce $100 million in synergies by 2016. The combined company is expected to be a global leader in four key specialty areas: Rockwell’s lithium and surface treatment fields and Albemarle’s catalysts and bromine businesses. Management sees strong growth potential and high margins moving forward for the company.
Investing In Albemarle
Albemarle’s current valuation is appealing, as its forward price to earnings ratio of 12.6 and its price to free cash flow ratio (P/FCF) of 12.4 are well below average for the specialty chemical industry. Deutsche Bank upgraded Albemarle stock back in October from Hold to Buy and set a price target of $67.00, a potential 14.3 percent upside from current levels. Albemarle’s Q4 earnings will be released on January 29.
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