Japanese chemical company JSR has selected global investment bank GCA Advisors to manage the sale of its Elastomer division, but the valuation is expected to be lower than for other manufacturing firms, industry sources said on Monday (January 25).
JSR has held a preliminary round of bidding for the sale, which is seen as part of efforts to streamline its portfolio by selling non-core businesses and to focus more on sectors with high profitability. The final round of bidding is expected next month.
Elastomer is one of JSR’s four divisions, together with Digital Solution, Life Sciences and Plastics. Elastomer manufactures and sells synthetic rubbers, thermoplastic elastomers and emulsions, and its mainstay product is styrene-butadiene rubber.
The Elastomer division accounted for 37.9% of JSR’s total revenue in the fiscal year ended March 31, 2019, compared with a combined 42% for Digital Solution and Life Sciences, and 20.1% for the Plastics division.
However, the Elastomer division recorded a loss of 1.8 billion yen (19.2 billion won) in 2019 compared with 2018, and revenue decreased by 10.9% in the same period. The division continued to record losses in 2020, with deficits of 5.6 billion yen between April and June and 7.1 billion yen between July and September. It was the only division that ran at a loss during these two periods last year.
JSR had expected the Elastomer division to record revenue of 131 billion yen and an operating loss of 14 billion yen for 2020, down 26.7% and up 7.8 times, respectively.
“The Elastomer division is in an unfavorable condition as the demand for tires is sharply decreasing and the cost of raw materials is increasing,” said a source.
Market insiders are closely watching the value put on the Elastomer division, which is not expected to fetch a high price due to its poor financial performance and gloomy business conditions.
“Manufacturing companies are generally valued at a multiple of around 10 times. But JSR’s Elastomer division is likely to be valued at a multiple of five to six times due to its continuing operating losses and unfavorable conditions,” said an industry source.
Lotte Chemical has joined the race for the division. JSR is also said to have approached LG Chem, but it is unlikely to take part. “Lotte Chemical and Japanese chemical companies have participated in the race and Lotte Chemical is quite keen to take over the division,” said an industry watcher. (Reporting by Byung-yoon Kim)