Koch to Buy PetroLogistics for $2.1 Billion to Add Propylene

May 28, 2014 4:31 pm ET

(Updates with closing share price in sixth paragraph.)

May 28 (Bloomberg) -- Koch Industries Inc., the holding company controlled by billionaire brothers Charles and David Koch, agreed to buy PetroLogistics LP for about $2.1 billion including debt to gain raw materials used to make plastics.

Koch’s Flint Hills Resources LLC unit will pay $12 a share for the stock held by private-equity firm Lindsay Goldberg LLC, York Capital Management LP, PetroLogistics’s chairman and its chief executive officer. The rest of the shares will be purchased for $14 apiece, PetroLogistics and Flint Hills said in a joint statement today.

PetroLogistics uses propane, a natural gas liquid, to make propylene at its Houston plant, the country’s only facility dedicated to producing the chemical. The acquisition provides Flint Hills with a key raw material it uses at plants in Texas and Michigan for making polypropylene, a polymer found in bottle caps, auto parts, carpet and clothing.

“PetroLogistics built this facility from the ground up,” Flint Hills CEO Brad Razook said in the statement. “Its capabilities are well aligned with our existing chemical and refining business.”

The deal is expected to close before the end of the year.

PetroLogistics rose 11 percent to $14.30 at the close in New York. The units have dropped 16 percent since May 3, 2012, after they first started trading at $17 each.

Potential Synergies

Flint Hills can use its existing pipeline system to send propylene to other facilities, Jake Reint, a company spokesman, said by phone.

“We will continue to serve the customers of the business but will look for synergies with our existing business in the future,” he said.

Koch, based in Wichita, Kansas, is the ninth-largest producer of polypropylene in North America with 937 million pounds of annual capacity, Deutsche Bank AG analysts said in a May 19 note. Koch’s Flint Hills unit also makes cumene, a propylene derivative, according to its website. It operates 670,000 barrels a day of crude-oil processing capacity in Minnesota, Texas and Alaska.

PetroLogistics, based in Houston, posted net income last year of $175 million on revenue of $757.5 million. The company, structured as a tax-advantaged master limited partnership, paid $2.5 million in income taxes last year, according to data compiled by Bloomberg.

PetroLogistics will no longer be an MLP under Flint Hills, Reint said.

Goldman Sachs Group Inc. and law firm Jones Day LP advised Flint Hills on the deal. Morgan Stanley and Evercore Partners Inc. are financial advisers to PetroLogistics.

Charles and David Koch are executives and owners of Koch Industries. Their holdings in the company make them the world’s fifth- and sixth-richest men, with an estimated wealth of $52.2 billion each, according to the Bloomberg Billionaires Index.

Forbes ranked Koch Industries the second-largest closely held U.S. company by revenue in a 2013 survey, behind Cargill Inc.

--With assistance from Jim Polson in New York.