Jan 27, 2012
Executives
James P. Rogers - Chairman and Chief Executive Officer Gregory A.
Riddle - Director of Investor Relations Jeffry N. Quinn - Chairman, Chief Executive Officer and President Mark J.
Costa - Chief Marketing officer and Executive Vice President of Specialty Polymers, Coatings & Adhesives Curtis E. Espeland - Chief Financial Officer and Senior Vice President
Analysts
Gregg A. Goodnight - UBS Investment Bank, Research Division P.J.
Juvekar - Citigroup Inc, Research Division David L. Begleiter - Deutsche Bank AG, Research Division Harry Mateer - Barclays Capital, Research Division Andrew Feinman Frank J.
Mitsch - Wells Fargo Securities, LLC, Research Division Jeffrey J. Zekauskas - JP Morgan Chase & Co, Research Division Kevin W.
McCarthy - BofA Merrill Lynch, Research Division Paul Leming - Ticonderoga Securities LLC, Research Division Nils-Bertil Wallin - Credit Agricole Securities (USA) Inc., Research Division
Operator
Good day, ladies and gentlemen, and welcome to the Eastman Chemical Company Fourth Quarter and Year End 2011 Earnings Conference Call. Today's call is being recorded.
Also this call will be broadcast live on Eastman's website at www.eastman.com. We will now turn the call over to Mr.
Greg Riddle of Eastman Chemical Company, Investor Relations. Please go ahead, sir.
Gregory A. Riddle
Thank you, Jake, and good morning, everyone, and thanks for joining us. On the call with me today are Jim Rogers, Chairman and CEO; Curt Espeland, Senior Vice President and Chief Financial Officer; and Mark Costa, Executive Vice President, Specialty Polymers, Coatings and Adhesives.
Before we begin, I'll cover 3 items. First, during this call, you will hear certain forward-looking statements concerning our plans and expectations for first quarter and full year 2012 and the acquisition of Solutia.
Actual results could differ materially from our plans and expectations. Certain factors related to future expectations are or will be detailed in the company's fourth quarter and full year 2011 financial results news release and in our news release announcing the agreement to acquire Solutia, both of which are on our website and in our filings with the Securities and Exchange Commission, including the Form 10-Q filed for third quarter 2011 and the Form 10-K to be filed for full year 2011.
Second, certain Eastman financial measures referenced in this presentation are non-GAAP financial measures such as earnings per share, operating earnings and cash flow from operating activities that exclude asset impairments or restructuring charges and early debt extinguishment costs. A reconciliation to the most directly comparable GAAP financial measures and other associated disclosures, including a description of the asset impairments and restructuring charges and early debt extinguishment costs, are available on our fourth quarter and full year financial results news release and the tables accompanying the news release, which are both available at www.investors.eastman.com.
Third, this morning we issued a news release, which is available on our website, announcing a definitive agreement to acquire Solutia. I direct you to review the sections in the release regarding where you can find additional information about the transaction that provide additional details about the participants in the merger solicitation and about information for the nonsolicitation.
With that, I'll turn the call over to Jim.
James P. Rogers
Thanks, Greg. Good morning, everyone, and thanks for joining us.
Last night, we announced our fourth quarter and full year 2011 results and then this morning, we announced we've entered into a definitive agreement to acquire Solutia. So I'll start this morning with a few slides about our strong 2011 earnings and then I'll spend most of the time this morning talking about why we're excited to be acquiring this great company, Solutia.
Last night, we announced our fourth quarter and full year 2011 results, yes, then this morning it was Solutia. Our agenda this morning begins with a quick review of our fourth quarter and full year 2011 results.
I'm going to do an overview of the transaction and I'll walk through the strategic rationale for our acquisition of Solutia. Then we'll do a quick overview of Solutia, which I'm sure many of you are familiar with.
And then Curt will discuss our financial summary and our EPS forecast for 2012 and 2013, and I'll end with a quick summary before we turn it over to questions. So starting with a recap of our fourth quarter results on Slide 4.
Revenue increased by 18%, mainly due to higher selling prices, which increased in response to higher raw material and energy costs. Operating earnings declined year-over-year primarily in the Specialty Plastics and PCI segments.
The primary driver for Specialty Plastics was lower sales volume and lower capacity utilization. For PCI, higher selling prices were more than offset by higher raw material and energy costs.
EPS of $0.71, slightly above last year. Still, our second best fourth quarter EPS in our history, and this was achieved we think in a challenging, uncertain environment and underscores that our businesses are solid even in the most difficult environments.
Looking at our full year results on Slide 6. Our EPS of $4.56 is an annual record, eclipsing the record from 2010.
Sales revenue was up 23%, and the increase was across the company. Operating earnings increased significantly in 2011 compared with 2010 as all of our 4 segments had year-over-year earnings growth.
Fiber's operating earnings were a record, and 2011 was the eighth straight year for earnings growth. And even CASPI now has grown their operating earnings 3 years in a row at better than a 10% rate.
And we've now grown our EPS by about 140% since 2009. The appendix to this presentation has the remainder of our normal earning slide deck for your information.
But now I'm going to transition into discussing our acquisition of Solutia that we announced earlier this morning. So we've entered into a definitive agreement to acquire Solutia for $22 in cash and 0.12 shares of Eastman stock.
Total enterprise value for the transaction is $4.7 billion, which includes $3.4 billion of equity value and the assumption of $1.3 billion of Solutia debt. Based on last 12 months EBITDA for Solutia, the multiple paid excluding the cost and tax synergies is approximately 9x.
This represents a 42% premium to yesterday's closing price on the common stock. Moving next to the financial impact, we expect this transaction will be immediately accretive to earnings upon close and will be substantially accretive to our 2013 EPS.
We've also identified approximately $100 million of cost synergies, which we expect to achieve by the end of 2013, and Curt will talk more about these in a few minutes. There will also be a significant benefit from the utilization of Solutia's NOLs, and we expect our overall tax rate will decline.
In addition, after this transaction is completed, Eastman will generate free cash flow of approximately $1 billion over the next 2 years. Conditions for closing include approval by Solutia shareholders and regulatory approvals, and we expect the transaction to close sometime midyear of 2012.
Now over on Page 8. You may recall back at our 2011 Investor Day, I showed a slide very similar to this describing our strategic focus for growth.
As we looked at acquiring Solutia, it became clear that it would hit each one of these focus areas. So starting with growing our core businesses, Eastman and Solutia have significant overlapping complementary and adjacent end markets, in particular, the auto and architectural markets.
We also see the combination of technologies in areas such as polymers, overlapping business capabilities as potentially driving significant revenue opportunity. We've also had a bias toward growing in emerging markets.
And back at our Investor Day, we told you that our 2010 revenue in emerging markets was over $2 billion. Including Solutia, 2011 revenue for Eastman would have been greater than $3 billion in those markets.
And with the addition of Solutia, Eastman will be adding significant manufacturing capacity in Asia over the next couple of years to meet growth. We are also well positioned to take advantage of a growing middle class buying more premium products.
We've also been focused on sustainable businesses, and this transaction expands our current portfolio in areas such as energy efficiency and safety. Lastly, given the strength of our balance sheet, we said we would use acquisitions and joint ventures as a means to execute our strategy, and this acquisition moves Eastman in the right direction on all key parameters we have defined for our growth strategy.
For those of you who are not that familiar with Solutia, we have an overview on Slide 9. They're a global leader in specialty chemicals and performance materials.
They operate in 3 business segments: Advanced Interlayers, Performance Films and Technical Specialties, with a market leadership position in each segment. Their last 12 months revenue was over $2 billion with an EBITDA margin of approximately 25%.
As you can see from the pie chart, Solutia is balanced across regions, with 14% of last 12 months revenue in China. Next on Slide 10, you can see both Eastman and Solutia have actively improved their respective portfolios over the past several years.
Solutia exited commodity businesses, including nylon and feed ingredients. They also added to their portfolio more specialty businesses such as Flexsys, which is in their Technical Specialties segment.
And they expanded their Saflex product line in the Advanced Interlayers segment. Eastman exited underperforming product lines in the CASPI segment and also divested our PET business with the sale of our last site completed in January 2011.
We've also added more specialty businesses with the acquisition of Genovique in 2010 and the expansion of our Eastman Tritan copolyester product lines. With these actions, both companies have improved their portfolios, have market-leading position in a number of their key products, and this leads to superior financial performance.
On Slide 11, you can see the substantial presence of Solutia and Eastman have in Asia Pacific, particularly China. For 2011, Eastman had approximately 23% of revenue in Asia Pacific.
Looking out through 2015, as you can see on the bar chart on the left, we expect growth to continue in the Asia Pacific region. The growth will be in areas such as acetate tow, Crystex and EVA, and we expect Solutia is well positioned to take advantage of trends such as an increasing middle class, which is buying more premium products in the move toward more sustainable products.
We expect the overall growth in Asia Pacific and the investments we are making will lead to revenues well above $3 billion by 2015. Turning next to Slide 12.
Our continued geographic diversity also remains a source of strength, although sales revenue in Asia Pacific increased only slightly. Adding Solutia to our portfolio will accelerate our growth in Asia Pac and China specifically, as I mentioned.
In addition, the amount of our revenue in North America declines on a pro forma basis meaningfully below 50%. And with Solutia, we are diversifying our asset base as 11 of their 24 manufacturing sites are outside of North America.
Turning next to Slide 13, to the end markets for Solutia Eastman and on a pro forma basis, you see the 3 pie charts there. Solutia has a significant presence in the auto and architectural markets.
For auto, these include glass and tires and OEMs, replacement aftermarket glass and replacement tires. In architectural, these include new builds and energy solutions.
Looking at Eastman on a pro forma basis, our revenue and transportation increases to 16% from 7%, and then building and construction increases to 19%, including energy solutions. We continue to have diverse end markets with no one end market being dominant.
And with the addition of Solutia's market presence, we will have a deeper understanding of our most important end markets. Finally, our end market and geographic diversity will continue to be a source of earnings stability, we believe.
Slide 14, one my favorite slides, more clearly shows that we are a top-tier North American chemical company with the Solutia transaction. You can see on a pro forma basis where we compare to specialty and diversified chemical companies.
Our combined EBITDA margin of approximately 20% compares very favorably to peers. And with EBITDA of approximately $1.8 billion, we are one of the largest companies in our space.
Now I'll turn it over to Curt.
Curtis E. Espeland
Thanks, Jim, and good morning, everyone. On Slide 15, we have an overview of the financing for this transaction.
You can see in the table that the new debt financing will be $3.5 billion, and we expect this to be composed of both a low-interest term loan and public debt. In addition, we have available bridge financing with commitments in place from Barclays and Citi.
Eastman equity issued to Solutia shareholders totaled $700 million, or about 20% of the overall purchase price. And we will use cash from Eastman and Solutia balance sheets expected to total $600 million.
A new revolver facility of $750 million will remain undrawn at closing. At closing, the pro forma debt to EBITDA ratio will be approximately 2.8x.
Given the expected strong financial profile of both companies, free cash flow over the next 2 years is expected to be approximately $1 billion, allowing Eastman to quickly delever. And given the strength of our cash generation, we remain committed to returning cash to stockholders with our strong annual dividend rate of $1.04 per share.
Lastly, I reiterate that we remain firmly committed to maintaining our current investment-grade credit rating. On Slide 16, we give you some detail on our cost, tax and revenue synergies.
Starting with cost, we have clearly identified cost synergies that approach $100 million. These include reducing corporate costs, which you would expect with 2 public companies.
We also see potential for synergies in the purchase of raw materials, and we expect this combination will result in improved manufacturing and supply chain processes. We expect to achieve the $100 million of cost synergies by the end of 2013, and we expect to update you on our progress as we move forward.
Moving to tax synergies, there are a source of value for this transaction. Solutia has approximately $1.5 billion of net operating loss carryforwards that we can utilize over the next 15 years, of which about half can be utilized over the next 3 years on an accelerated basis.
There are also foreign tax credits totaling approximately $150 million that will be utilized over the next 10 years. And the combination of Solutia's geographical profile and our anticipated tax structure should enable us to reduce our corporate tax rate by a couple of hundred basis points.
On the revenue synergies, we view these as upsides, but we think they are very real. A couple of examples of leveraging technology from Eastman and Solutia.
First, Solutia has solid position and deep customer connect in the tire market through its Crystex and Santoflex product lines. One of CASPI's most exciting new growth platforms is the opportunity we see to enable innovation for energy efficiency in tires.
We already have growing sales of hydrocarbon resins that we believe would be accelerated. More significantly, we have been investing in research on novel product development, leveraging for -- leveraging our profitable cellulose ester product lines.
We believe that both of these technologies can address significant unmet needs in the tire industry. Solutia's current position in the tire market should help to accelerate these developments.
Another example is exploding the intersection of Eastman's polymer materials technologies with Solutia's conductive coatings technologies to serve the increasing performance needs of the rapidly expanding touchscreen LCD and the flexible circuits markets. Complementary business capabilities, including leveraging our world-class market development capability and similar business models between CASPI and Specialty Plastics, and Solutia's businesses.
And I as already mentioned, we have overlap in the auto and architectural markets which deepens our understanding of these markets, which we expect will lead to additional opportunities. Our track record from the numerous successful acquisitions and divestitures we've completed and the knowledge we've gained from these transactions gives us a lot of confidence that we will realize the cost and tax synergies we've listed here and that we'll make good progress on the revenue synergies.
We have a clear path to completion of this transaction, as you can see on Slide 17. The acquisition requires the approval of Solutia stockholders.
We will also be working on receiving the necessary regulatory approvals. There are also standard and customary closing conditions.
There is not a financing contingency, and the termination fee is $102 million. We expect to close this transaction by midyear 2012.
On Slide 18, you can see this transaction is expected to result in significant earnings per share accretion. For 2012, we expect EPS of approximately $5 a share.
Included in this expectation is accretion from the Solutia acquisition plus some of the expected cost synergies. We also expect earnings growth from our organic growth initiatives and the acquisitions we made in 2011.
We are also increasing our 2013 earnings per share guidance to greater than $6 per share. This includes greater accretion from the Solutia acquisition and additional benefits from our organic growth initiatives.
We also expect additional benefits from cost synergies. With this acquisition, you can see from our earnings expectations we have accelerated our earnings growth.
And now I'll turn it back over to Jim.
James P. Rogers
Thanks, Curt. So, if we walk through the details of the transaction this morning, I think you can see that the combination of Eastman and Solutia results in a pretty compelling value.
From a strategic standpoint, the complementary and adjacent end markets, the combination of technologies and business capabilities, and the acceleration of growth in Asia Pacific, specifically China, all make clear that Solutia is a strong addition to Eastman. Both the cost and tax synergies make this a compelling financial transaction, with revenue synergies as an upside.
We expect to be able to complete this transaction while remaining committed to our investment-grade credit rating. Transaction has an attractive return on capital.
And lastly, the transaction is highly accretive to Eastman's earnings per share, in effect accelerating our EPS growth and making it clear that we are on track to deliver continued earnings growth for the next several years. Now as I turn it back over to Greg, I'll just mention I asked Mark Costa to join us this morning.
Many of you know Mark. He leads our CASPI and Specialty Plastics business, also marketing sales innovation and the supply chain.
But the reason -- main reason he's on the call is because Mark led the business due diligence that we did with Solutia as Mark led the financials. So when we get to the questions, probably all 3 of us will be pitching in to answer.
And with that, let me turn it back over to Greg.
Gregory A. Riddle
Thanks very much. This concludes our prepared remarks this morning.
Operator, we are ready for questions.
Operator
[Operator Instructions] And we will begin with Jeff Quinn with Solutia.
Jeffry N. Quinn
I just wanted to call just to say hello and to say that here at Solutia, we totally agree with Jim's perspective on this transaction. And it is indeed a transformative transaction, and we at Solutia are very excited to be joining a world-class diversified chemicals producer like Eastman.
Not only does the transaction deliver meaningful premium to our shareholders over our recent trading price, it enables our investors to benefit over the long term in the combined company due to the stock component in the purchase price. The Board of Solutia and I unanimously agreed that this transaction was in the best interest of our shareholders, but also was in the best interest of the other stakeholders.
Our employees, our customers, our suppliers and all the communities around the world where we have operations. The combined company is going to have the financial strength, diversified and complementary mix of premium products, a geographic footprint to accelerate growth and to take advantage of the powerful global trends that are driving demand for our products, including rapid growth in emerging markets and improving living standards across the globe and increased urbanization.
When evaluating this transaction, it was very important to me and the board that any transaction would see as being paired with a company that has a close strategic and financial fit, as well as a fit with the values and culture, that we have worked so hard to instill here at Solutia over the last 8 years. With Eastman's complementary operations and the vision of Jim and his team, our Advanced Interlayers, Performance Films and Technical Specialties businesses are poised to continue to build on the success we've achieved over the last few years.
Solutia and Eastman are highly complementary to one another not only in terms of our businesses, geographic presence and products, but also in terms of what we stand for. Both companies are known for innovation, investment in high-growth markets worldwide and the highest level of customer support and service.
We also share a deep and abiding commitment to operational excellence, developing products that respond directly to market demand and delivering value to our stakeholders. So, Jim, for all of us here at Solutia, I just want to say that we are terribly pleased with the transaction and look forward to working with you and your team to continue to create value for our shareholders, and we're very excited about what lies ahead and look forward to the future.
James P. Rogers
Thanks Jeff, and I'll return the compliment. It's been a pleasure to work with you and your team.
I think you did a great job for your shareholders and all the rest to your stakeholders. So my only word of advice is try and get some sleep this weekend, okay?
Operator
And now we'll move to a question from David Begleiter with Deutsche Bank.
David L. Begleiter - Deutsche Bank AG, Research Division
Jim, as you know, a lot of value at Solutia is in their Crystex business, a business that they keep under close scrutiny given its very high margins, very high market share. Can you go through the due diligence you've done on Cyrstex to get comfort that business is sustainable both in terms of the margins and its competitive technology differentiation?
James P. Rogers
Yes, we'll give some cursory comments. Again, I mean we're probably 6 months away from the close.
But I want to make a general comment, then I'm going to get Mark to add some color as well. Let me just tell you overall, I was pleased with the way we work together with the Solutia team in terms of being able to work quickly but also very diligently and to get all our questions answered, not just on this particular business but financial, tax, markets, et cetera.
So I feel very good about how we made our decision, what we were able to factor in. But Mark, do you want to comment more specifically on Crystex?
Mark J. Costa
Sure. Dave, it's a great question.
And certainly it's one of the products we like best in the portfolio of Solutia. As you pointed out, it is a nice high-margin business.
We like the industry structure there, which is reinforced by their leadership position and the quality of their products. So, it's not just their positioning capacity and cost relative to the small competitors that their product is a much higher performing product and delivering value and efficiency in the tire operation.
It gives them a nice, sustainable position in the cost in the final tire being less than 1%, and the importance of performance gives them a very sustainable position, where you'd be very hesitant to switch to other products. We also like that there's no significant capacity on the horizon that would threaten the margins in that business.
Certainly not at the capability that Solutia has. It's very similar also to the kind of positions we have in CASPI.
When you look at our cellulose esters and coatings or our texanol and architectural paint, it's a very, very similar kind of cost and performance position that we have. It's the kind of business we understand quite well and know how to run.
And it's the kind of the product portfolio we like best inside Eastman.
David L. Begleiter - Deutsche Bank AG, Research Division
That's helpful. Jim, can you comment on whether this transaction began at auction or was it a singular negotiation?
James P. Rogers
Well, I think that all that kind of detail, all the good stuff people like to read at night after they go home, that's all going to come out in the proxy. I'll just say from our side, we entered into a very, let's say, exhaustive process sometime last summer, working with our board about our strategy roadmap and decided that we would really look at the inorganic opportunities that are out there.
And I can tell you that Solutia was #1 then and has stayed #1 through that whole process. I mean we looked at quite a few different possibilities for ourselves.
And this was -- this rose to the top. I'll also say just on a personal note, I've been here since 1999.
This is the best thing I've seen in a major way for Eastman to take a step forward on their growth. So we had a very thorough process.
They rose to the top. We entered into discussions, and you see the result of that today.
David L. Begleiter - Deutsche Bank AG, Research Division
And Jim, last thing, just on the fourth cracker down in Longview, what's your current thinking on that cracker going forward?
James P. Rogers
Yes, I'm glad you raised that because I was hoping we'd get a chance to talk about -- a little bit about the olefin picture. And I may get Mark to comment again as well because CASPI is affected by our cracking spreads and what we're doing there, as well as he's got the supply chain.
But in general, I think things are looking up. Just as a recap, we restarted a cracker, I guess that was like early '10, right, and we think the economics of that was probably a good $30 million of EBIT.
It's one way to think about it. We took a couple other smaller actions adding a furnace to one of those crackers and another little step that will probably kick in about $20 million of EBIT when I look at, what, '13 over '12 because I guess that will come on into '12.
And then we've been talking about that we want to restart that fourth cracker. What's rising to the top is the idea of an olefins conversion unit, and we are in discussions now with the potential partners on that unit.
And it's the kind of thing that would probably kick in, in 2014 such that we would get earnings growth, say, a little '14 over '13, but then '15 over '14. And that olefin conversion unit, our piece of the economics of that -- and as I'm talking, I'm realizing I'm saying everything Mark probably would have said.
But our piece of that is going to be greater than the last cracker that we started up. In other words, the EBIT should be quite good on that unit as well.
So there'll be more coming on that. Then maybe a better alternative than just restarting that fourth cracker.
Is that fair? And maybe while around, if I could just get Mark to comment what we're seeing on the propane propylene spreads as well.
Mark J. Costa
Sure. I mean I think that we certainly feel very good about the long-term spreads in olefins versus the propane, ethane.
In the short term, we're also feeling better in the last couple of weeks relative to where we've been in the fourth quarter, as I'm sure you've seen Exxon is going out with a nomination, the $0.20 increase in propylene. And so there's a lot of discussion out there in the marketplace around how propylene prices may increase significantly here as we go into February and March, and certainly that would be an attractive improvement for spreads for us given our position in the -- with our crackers and some upside to earnings.
James P. Rogers
Yes, just to be a fair, those nominations usually you end up with some percent of that, so these are just early indications. But that's probably a little better than we felt 3 months ago when we were talking about bottoming in the fourth and first quarter, maybe starting up in the second, maybe we'll start up a little sooner than that.
Operator
And now we will move to Frank Mitsch with Wells Fargo Securities.
Frank J. Mitsch - Wells Fargo Securities, LLC, Research Division
I'm looking at your Slide 18, and it looks as if Eastman on its own might have grown something like -- your expectation for 2012 might have been for something like 3% to 4% growth in earnings and EPS. But with Solutia now, obviously you're expecting double-digit type of growth.
Is that predicated on Solutia coming into the portfolio on July 1? If the deal is delayed, how do you think about the 2012 earnings and Solutia's impact on that?
James P. Rogers
Yes, expectation is right around midyear, Frank. So and by the way, the slide is just representative, so don't get your ruler out and measure that little slide, which you've probably already done, so it's too late.
But I guess what I'm saying is, I mean, we thought we would have some growth in our earnings this year whether we did an acquisition or not. So that was just the straight up running the core businesses.
We knew we were going to use cash, use our balance sheet, so either buying back stock, doing small acquisitions. So, there was going to be growth on top of that, and that's the guidance we would have given.
Let's just say, we have this beautiful opportunity to add a property like Solutia to our portfolio. And if it happens in midyear, we'll get about half the year of those earnings.
We'll have captured some of the synergies right up front. Obviously, this is kind of excluding the onetime cost of getting the deal done, et cetera.
So kind of factor in a midyear and then you can head for that $5.
Frank J. Mitsch - Wells Fargo Securities, LLC, Research Division
I see, okay. Because it was interesting looking at the -- your release last night, and I saw the pace of share buyback was materially lower in the fourth quarter.
And obviously, I realized why this morning. And then, I guess, lastly, on the revenue synergy side, I know Curt you talked a little bit about the tire market and the touchscreen market.
I was wondering if you could give us a preliminary look in terms of sizes of revenue synergies out there, either in macro or at least rank order, where you think the best overlap is and where you can really drive top line growth with Solutia now part of the portfolio.
James P. Rogers
And Frank, let me take your questions. I want Curt to just comment just briefly on the kind of some of the cost synergies and the work we went through to identify that.
Then I'm really going to turn your revenue synergy question to Mark, because a lot of the synergies are going to be with businesses that he runs today. But Curt, just in general.
Curtis E. Espeland
So again, Jim mentioned the level of diligence we were able to complete. Let me just add, first on the tax side, we feel very good about the tax benefits that come with this transaction, both in the next several years and longer term.
On the cost synergies, we've been looking through different components and different buckets. Obviously, we're trying to be very mindful to make sure both businesses are still operating strong.
We made some early assessments. We feel comfortable with the target that we've established.
And as we get further into understanding the infrastructure and the footprint, we may adjust that number. But right now, we feel good about the $100 million.
James P. Rogers
Yes, and just on the revenue synergies, I don't feel like we had to factor a lot of that into our valuation models. But I want Mark just to talk about what the potential could be.
Mark J. Costa
Sir, I'm just going to give 2 examples. The first one is on the tires, as you asked, Frank.
With tires, we certainly see some significant opportunities today. We already have resin sales in tires.
As the regulations are driving for more fuel efficiency in tires and they're looking to also, of course, maintain wear and traction at the same time, which is what they call the magic triangle, you're always trying to formulate that tire just like you are formulating a coating to get optimal performance in that magic triangle. It turns out that some of our hydrocarbon resins and even more significantly some of our cellulose ester products can perform some pretty interesting improvements in optimizing those performance parameters that have us quite excited.
And as I said, we're already seeing some resin sales. So I think that there's at least $100 million of upside around that opportunity for us.
It's still a bit early, so I don’t want to get into specifics. And those are relatively high-margin products.
So it's a meaningful opportunity for us, and we certainly have a deep respect for the quality of relationships that Solutia has with tire companies and their application development capability and believe they'll bring a lot to our efforts in this area in improving our probability of success and accelerating it as well. I think the other place where we see significant opportunity, Frank, is in the combination of Specialty Plastics and our capabilities there and Solutia's coatings capability and performance films.
There's a lot of opportunity there around combining those 2 technologies. Rarely do you get the opportunity to work both on the -- when you have control of both the coatings and the substrate.
Today, they're limited by commodity PET as a substrate. When you look at the challenges you have in improving performance, it's usually something around heat resistance, clarity in the optical properties, chemical resistance and toughness that you're trying to improve in the substrate and the coating.
When you take our copolyesters and Tritan and our unique world capability, to do modification of those substrates combined with our coating capability, it opens up a lot of innovation in conductive films and flexible circuits that we're pretty excited about.
James P. Rogers
And Frank, before we go to next question, Frank had raised the slowing down on our stock buyback. I was just going ask Curt.
We just couldn't help ourselves, we had to go back out of curiosity and see what the average price we had paid for the stock we'd bought back over the last.
Curtis E. Espeland
So, if you look at last 2 years, 2010 and 2011, we bought $600 million in shares or roughly 15 million shares at an average price of $40 a share.
Operator
We'll now move to Kevin McCarthy with Bank of America Merrill Lynch.
Kevin W. McCarthy - BofA Merrill Lynch, Research Division
I was wondering if you could elaborate on how exactly you arrived at the valuation coming down to 9x trailing EBITDA. What metrics did you tend to focus on and what the approach was there?
And then related to that, how did you arrive at the cash and equity split? Not sure what level of conversations you may have had with the rating agencies, but perhaps you could help us understand how that was apportioned.
James P. Rogers
Okay, sure. On the first part, the valuation, we didn't reinvent the wheel.
The way we approached it was the way everyone does, basically, on a number of fronts. I'd say we're mainly driven by thinking of cash flow, so you have all your discounted cash flow analysis and you really work from there.
And of course, you're forced to look at other multiples of transactions, you're forced to look at how things are trading in the marketplace. And as you know, both boards will have, or do have, fairness opinions from their banks.
So the valuation is going to be a complicated process as that looks at a number of things. Those of you know me know I always start from my financial background.
So if I could really dumb it down, it had to be a good deal. And I think putting the 2 companies together created value in a way that made us the logical buyer.
But I would say, most of my thinking was strictly driven off the cash flows and what we thought we could do with these businesses. In terms of the -- and by the way, so the multiple you say is, of course, before the synergies and before we look at those tax benefits.
On the cash versus stock, obviously, a negotiated item. I think Jeff did very well for his shareholders.
I think they got a great deal, nice premium. I think that we, from our side, very protective of our investment-grade rating.
We think by being investment grade, we maintain our flexibility to pursue all the growth alternatives that we see in front of us. And remember, we were pretty content with the portfolio of organic opportunities we have.
This was just an extraordinary chance for us to take advantage of inorganic opportunity. The rating agencies, I don't want to preempt their story, I think they'll be out later today, but we think we have a very strong credit profile and hopefully, you don't have long to wait to hear what they think.
Kevin W. McCarthy - BofA Merrill Lynch, Research Division
Okay. And then following closure at the deal, Jim, can you comment on what the future of the portfolio may look like?
It's not obvious to me that you would have any subsequent divestitures or peel-offs either for antitrust or strategic reasons. But how do you think the combination affects your future deployment capital?
James P. Rogers
That's a good question and I -- just to pick up on that, I really don't think there's much overlap at all that would give rise during the HSR issues or antitrust issues. We like their portfolio.
They got some very strong businesses. I think it's premature to kind of walk through each one.
I think the places where the Solutia management today realizes they need to do some work and maybe adjust their game plan, we agree with them. And so we'll be watching what they do over the next several months.
Remember, they're still running this company until the middle of the year. But net-net, we like their portfolio of businesses.
And when you hear us Eastman execs stand up and talk about strong core businesses, we're just going to have more strong core businesses to talk about.
Operator
Now moving to Jeff Zekauskas with JPMorgan.
Jeffrey J. Zekauskas - JP Morgan Chase & Co, Research Division
In terms of the utilization of the tax assets that Solutia has, is there anything unique about Eastman that allows you to use them in a way that someone else couldn't use them?
Curtis E. Espeland
Jeff, this is Curt. I think it's fair to say that our tax positions are very complementary.
If you think about Eastman as a U.S. multinational, we have a fairly large U.S.
taxable income, and that enables us to utilize the results of the NOLs. That would be harder to say for someone that is not a strategic U.S.
chemical company like Eastman.
James P. Rogers
Or a private equity player.
Jeffrey J. Zekauskas - JP Morgan Chase & Co, Research Division
Yes. And what about the entity structure, can you just elaborate a tiny bit on that as to how that would give you extra tax synergies?
Curtis E. Espeland
So what that would entail is a couple things. And again, there's still a lot of work to do between now and closing to finalize that.
But part of it is simply just their foreign income versus our foreign income and just the benefits and attributes that provides. And then just when you take 2 companies like this, you have the ability to look at your overall tax structure, do some effective tax planning and they have an impact on your overall effective tax rate.
So we could be coming between 30% and 31% on an overall combined basis, which will be very attractive for us.
Jeffrey J. Zekauskas - JP Morgan Chase & Co, Research Division
And then in terms of your core operations, can you give me an idea of what the sequential volume change was in CASPI and PCI and Specialty Plastics?
James P. Rogers
Over what period are you thinking, Jeff?
Jeffrey J. Zekauskas - JP Morgan Chase & Co, Research Division
From the third quarter to the fourth quarter.
James P. Rogers
Well, If I could just in general, I think we've got some tables in there. But in general, third to fourth was mainly the typical seasonal downturn with -- and then add on top of it more destocking than we've seen in probably 3 of the 4 businesses, right?
So fibers is almost -- there's nothing to think about or talk about there, just once again, excellent performance. The other 3 businesses, they each had their own story.
Specialty Plastics, probably the biggest story in terms of destocking and how their business came off. I think maybe what I'll do since I got the guy who has CASPI and SPBO in the room, maybe I'll let Mark just comment on third to fourth.
And then maybe also a look forward at what you see coming back in the first quarter.
Mark J. Costa
Sure. Jeff, on Specialty Plastics, as Jim mentioned, I would really characterize it more as a first half versus second half story, where we saw a pretty material drop in demand in the second half.
I would note that, that drop in demand was in line with what we're seeing in all the other sort of comparative polymer industries. So if you go to CMAI or some other source and look at demand drops in polycarbonate PBC and some other polymers there, you'll see a pretty significant drop, too, and it's mostly what we can tell is the slowdown in the economy and the typical pull with inventory correction you get in the polymers industry.
There's no question that on a modest basis, we probably lost a little bit of share there as we've increased prices pretty substantially through the year to cover PX. But I would note that I feel very good about the business, our ability to maintain margins and value propositions that have stuck with our customers gives me good confidence this year.
We've already seen a good recovery in orders in January for Specialty Plastics, so we feel like we're back on track there. In CASPI, I'd characterize it more as your typical seasonal adjustments of volumes.
I would say that it also was more of a second half story, where some of our high-margin products like cellulose esters saw a drop in demand both third and fourth quarter. What was unique in the fourth quarter wasn't so much a drop in revenue from third to fourth, it was a correction in production rates and inventory management that led to unabsorbed fixed costs.
The spreads in both businesses held up quite well, and I'm feeling good about them in the first quarter.
Jeffrey J. Zekauskas - JP Morgan Chase & Co, Research Division
And then, I guess, lastly for Curt. In the $100 million synergies that you've identified, in ballpark terms, what would it cost you to achieve those?
Curtis E. Espeland
When we look at integration costs, we're talking about probably an equivalent amount $100 million over that same time period, 18 months.
Operator
And now we move to next question and that will come from Nils Wallin with CLSA.
Nils-Bertil Wallin - Credit Agricole Securities (USA) Inc., Research Division
Currently, are there any synergies in terms of raw material? Are you -- are both Solutia and Eastman buying similar raw materials?
James P. Rogers
Yes, we are. And again, just so I don't do all the talking, Mark, you've got supply chain.
I think we both know the answer because this is one we like. So I'm going to give the good one to Mark.
Go ahead.
Mark J. Costa
So we certainly see quite a bit of overlap in some opportunities there. So if you look at Solutia's top 10 raw material purchases, we either make or buy 8 of those top 10 raw materials.
So there's quite a bit of overlap that we see either in leveraging production assets we have or improving our combined buy and some different kinds of swaps we might be able to pursue to optimize our cost position. So we think it's a good opportunity area.
I think we've been relatively conservative so far in the value what we think we can get from there.
Nils-Bertil Wallin - Credit Agricole Securities (USA) Inc., Research Division
Great. And then in terms of customer overlap, it sounds like there is a fair amount.
Could you give us a sense of percent of businesses or revenues that you guys overlap?
James P. Rogers
Yes, we probably don't want to do that at this stage. I mean what we thought was perhaps more useful was just to give you some examples.
And so that's what Mark did earlier when he was talking about, for example, the tire customers or when you get into film. So let us beg off on that for a little bit, and we'll be able to talk about that more in the quarters to come.
Nils-Bertil Wallin - Credit Agricole Securities (USA) Inc., Research Division
Great. And then just finally, in Specialty Plastics in the fourth quarter, I believe there was some planned maintenance.
How much did that hurt earnings?
James P. Rogers
That was about a $5 million hit in the earnings in the fourth quarter.
Operator
We'll now move to the next question and that will come from P.J. Juvekar with Citi.
P.J. Juvekar - Citigroup Inc, Research Division
In Specialty Plastics, you had certain decline in volumes in 4Q. Can you just talk about that and what kind of ramp up do you see in 2012?
James P. Rogers
Yes, and again, I'm going to let Mark answer, but let me just say, we did -- there was some lower margin business that we were walking away from, so you probably do need to hear a little more color to get the understanding of really what's going on in the business. One of the things I'm most proud of is Tritan seems to be staying very strong because that's one of the places we're adding capacity, so we feel pretty good about that.
But Mark, do you want to throw some more color on that?
Mark J. Costa
Sure. I mean it's a mixed story, PJ.
There is part of it which is, as Jim mentioned, where we continue to see very good and continuous growth. So Tritan grew well over 20% year-over-year from '10 to '11, and we're continuing to see that growth into '12 as we just completed, mechanically, the second 30,000-ton expansion for Tritan in January.
So we're feeling very good about that part. The second part I'd say is the displays industry, as you can probably see from a lot of other companies out there, went through a pretty rough patch in the second half of last year of severe destocking, and we saw the similar kind of significant drop in orders for displays.
And we expect that to continue to be soft as that industry is still going through inventory correction in the first half of this year. But we expect a pretty strong recovery in that market.
Overall, we think displays is going to continue to have very solid strong sort of 20-plus-percent growth in the downstream market that will make that business attractive. And then on the copolyesters, the core part of the business, that one is the one where we had more of the volume drop than Tritan of course.
And that was just your typical inventory correction, as I mentioned earlier, that the whole polymer industry saw. And I do think we've seen good recovery across all markets in January as people are starting to come back and the market recovered from that destocking.
P.J. Juvekar - Citigroup Inc, Research Division
On the merger, when you look at revenue synergies, is it fair to say that the chemistry overlap between the 2 companies is between Solutia's Performance Films business and your CASPI business?
James P. Rogers
Okay, more of the Specialty Plastics and more of the polymer chemistry in general. I don't know, Mark, do you want to add anything to that?
Mark J. Costa
I think that's right. I think we see a good connect in their polymer businesses and Specialty Plastics.
I would say the CASPI connect is more with the rubber additives business, and where we see the connection there.
P.J. Juvekar - Citigroup Inc, Research Division
And Jim, one last question on your Slide 14. You haven the pro forma company mapped out fine in terms of EBITDA.
So when you look at the future, sort of longer term, what do you see? And do you see that you will digest this acquisition in the next couple of years and then try to continue to move to the left?
James P. Rogers
I think we've got -- we're thinking in terms of an 18-month plan. I think, again, you're going to see a pretty strong credit profile.
So while pay down of debt is going to be one of the top priorities for cash, I don't think we have to go completely silent. I mean, obviously, in the next 12 months or so, after we close on the transaction, we're going to be very focused on doing this integration right and capturing at least what we promised.
But I think we will be able to lift our heads up, continue pursuing the organic opportunities we got and there'll be a time at which we get more active again inorganically. And honestly, if I had to choose between the directions, yes, I'd rather go left than right.
But I want to tell you something. This isn't so much an ego-driven culture that, well, we've just got to be bigger.
We're really about creating shareholder value. What I feel the best about, when I look out over the next few years, is how we're kind of increasing, greatly increasing, I would say, the odds of year-over-year earnings growth for multiple years.
So we had earnings growth '10 and over '09, '11 over '10. Now I'm seeing a pretty clear path to '12 over '11.
I think we've just attacked on a cushion there. And then '13 over '12 for sure as I look at getting the synergies in.
And '14 over '13, the same story. So you don't have to hit the ball out of the park every time, you just need to have that consistent track record of growing your earnings at this kind of rate.
And we're going to look pretty darn good. So that's more the game plan, it's value creation and driving your earnings per share.
Operator
And now we'll move to a question from Harry Mateer with Barclays Capital.
Harry Mateer - Barclays Capital, Research Division
Three questions for you. I guess first on the rating side, it sounds like you ran this by the agencies ahead of time.
But just to put a finer point on it, are you comfortable running the business at low BBB or do you expect to retain your existing mid BBB ratings?
James P. Rogers
So again, I'm not going to steal the thunder from the agencies. They do their own releases, do their own analysis.
I'm telling you we feel like we have a very strong credit profile. I'd be comfortable with either of those ratings.
I mean, they're both investment grade. We like every much where we are, and I think we have maximum flexibility where we are.
Harry Mateer - Barclays Capital, Research Division
Okay. And can you give us a sense for the anticipated mix of loans and bonds for the new debt financing?
James P. Rogers
It's not final yet but, Curt, why don’t you tell him what we're thinking.
Curtis E. Espeland
Yes, we're working through aspects and we'll obviously see what the market does over the coming years. But we were looking at a mix of 5, 10 and 30 years.
And then what's nice about the current market is the after tax rate on that debt is probably going to be closer to 3%.
Harry Mateer - Barclays Capital, Research Division
Okay. And in terms of the term loan, any sense for what the tenure of that is going to be?
Curtis E. Espeland
The term loan is a 5-year term loan with accelerating payments on the back end. But with the free cash flow profile you see here, you can see us paying that probably on a more accelerated pace.
Harry Mateer - Barclays Capital, Research Division
Got it. Okay and then last just in terms of the Solutia debt, I know those bonds have some equity claw language.
Can you share your expectations for how you're going to deal with that?
James P. Rogers
Not yet, that's still to be discussed. And there'll be the appropriate time to say something on that.
Curtis E. Espeland
And just to be clear, maybe on the term loan, that's going to be about $1 billion of the debt mix.
Operator
And now moving to a question from Andrew Feinman with Iridian Asset Management.
Andrew Feinman
Well, first of all, I just wanted to say that, Jim, you told us that when you spend some money, it's going to be something where right out of the box your owners are going to like it and it's going to make your stock go up. And sure enough, the stocks have 4 points pre-market, so thank you for living up to your commitment.
So how many shares of Solutia are there? I'm just trying to figure out how many shares of Eastman there will be created.
James P. Rogers
I think it's about 15 million shares of Eastman, because it's, what, 124 million?
Curtis E. Espeland
About 124 million shares will be on the Solutia side, and we'll be issuing about 15 million, which, like I mentioned, is almost equivalent to the 15 million we bought back over the last 2 years.
Operator
And we'll now take a question from Paul Leming with Ticonderoga.
Paul Leming - Ticonderoga Securities LLC, Research Division
I'm just curious whether or not you could highlight what you believe are some of the key end-market growth drivers that acquiring Solutia will really give you a greater exposure to you. You've talked about tires.
Beyond tires, what are the other key markets, end markets that you really see as strong growth propositions for Solutia?
Mark J. Costa
Sure. Great question, and certainly the automotive tire part is part of the story, but I wouldn't leave it there.
The architectural market we see is very attractive and especially at this time of the cycle in the architectural, we're buying in at a good position in the demand trends for architectural. But they -- Solutia has some great products, bringing energy efficiency and safety and aesthetic performance in the architectural market, and we see that as quite exciting.
I'd also say that applies to the automotive window market as well and some of the things we're doing in Performance Films for the same set of drivers. So as you see a world becoming much more conscious about energy efficiency, looking to upgrade the quality of products that they have in aesthetics and performance, they're in a great spot to leverage both those trends of architectural and automotive and performance films and Saflex.
And then we see the electronic space, which is certainly very high growth and an attractive part of our Specialty Plastics business, leveraging that same set of trends. And what they have emerging in performance films creates a whole new market space that, while it's still relatively small at Solutia, I think it has tremendous upside growth to it for both companies, especially as we bring a very unique capability together because we'll be the only player in the industry that has both the ability to modify substrates as well as coatings at the same time, so we'll be very uniquely positioned.
Operator
And that question will come from Greg Goodnight with UBS.
Gregg A. Goodnight - UBS Investment Bank, Research Division
It sounds like to me after the Sterling acquisition you guys are trying to piece together the old Monsanto chemical. You wouldn't comment on that?
A couple of questions for you. You mentioned about half of the NOLs being accessible in 3 years.
Could you comment on what you think your eventual ability to capture the rest of the NOLs or the domiciled where you will have access to them?
Curtis E. Espeland
Yes. The NOLs, as you know when you have NOLs, you inherit certain limitations as well as it has to complement your own.
But right now, we feel we'll get half in the next 3 years and we'll get all of it over the next 10 to 12 years.
Gregg A. Goodnight - UBS Investment Bank, Research Division
Okay, great. It may be a bit early to answer this question.
Could you comment on your access to the historic patent state of Solutia and Monsanto? And have you ascribed any value to that?
You think you can ring some value out of the intellectual property that this thing brings to the party?
James P. Rogers
I guess all I want to say now because as you might imagine valuation is going to be a topic very quickly here, speak around it a little bit. But let me just say, we were able to do the diligence we needed to do, look at the things we needed to look at in order to reach what we thought was an appropriate value.
Gregg A. Goodnight - UBS Investment Bank, Research Division
Okay. And speaking of value, if you add the NOLs and the synergies and the like you're talking multiples more in the -- potential multiples more in the 6 to 7 range, which seems very attractive.
Do you think that's a reasonable analysis?
James P. Rogers
I think the things you mentioned do have value, and I think it's -- again, let me just say, I think it's quite attractive for our shareholders, but I also realize that the folks on the other side of the table got a very good deal. I think they got a nice premium, and I think they continue to get some upside as they have a piece of our stock.
So good deal all around.
Gregg A. Goodnight - UBS Investment Bank, Research Division
Yes. My thinking is in knowing both your companies, I worked for Solutia for a long time, and I would comment that the cultures are extremely similar, and it's very striking in that.
I think the Solutia folks, employees certainly ought to be very happy with this. To me it goes beyond a friendly takeover and the sort of approach as a marriage.
What do you think about the 2 cultures?
James P. Rogers
I appreciate that. We agree with you completely.
I can tell you that the -- everyone we've met at Solutia were truly professional, and it felt like a good fit from day one. So I can tell you, I'm just so pleased that we were able to get together.
Gregory A. Riddle
Okay, thanks again for joining us this morning. A web replay will be available on January 30.
Have a great day.
Operator
And with that, that will conclude your conference for today. We do thank you for your participation.