Lyondell Schulman Acquisition and 3D Printing

On February 15th 2018, in a transaction that surprised many industry observers, Lyondell, the large $29 billion sales Netherlands chemical company with almost 60 international manufacturing plants, announced the purchase of A Schulman, the Ohio-based plastics company, for over $2 billion.

On a February 16th, 2018 Forbes published an article by Claire Poole called “3 Reasons to Like LyondellBasell’s $2.25 billion Acquisition of A. Schulman.”

1. The deal is strategic in that it combines LyondellBasell number three plastic compounding business with number four Schulman, resulting in the number one position displacing PolyOne Corp. as the market leader. The merger is projected to result in $150 million in annual cost savings.
2.  Another reason is that the transaction price is favorable. Lyondell is paying only a 6.3 times multiple on long-term earnings before interest, taxes, depreciation and amortization. The purchase will also help pay off A. Schulman’s high cost debt.
3. The third reason would be the deal does not involve Braskem, a previously discussed, potential LyondellBasell purchase with weaker fundamentals.
4. An additional fourth reason that this may be a good acquisition is the 3D printing plastics market potential. The largest chemical company in the world is BASF, which has also made a major commitment to 3D printing.

In the US, Lyondell Schulman will be able to use R&D Tax Credits to further support their presumably expanding 3D printing plastics business. 3D printing for plastics has been one of the 3D printing industry’s leading success stories.

The Research & Development Tax Credit

Enacted in 1981, the now permanent Federal Research and Development (R&D) Tax Credit allows a credit that typically ranges from 4%-7% of eligible spending for new and improved products and processes. Qualified research must meet the following four criteria:

• Must be technological in nature
• Must be a component of the taxpayer’s business
• Must represent R&D in the experimental sense and generally includes all such costs related to the development or improvement of a product or process
• Must eliminate uncertainty through a process of experimentation that considers one or more alternatives

Eligible costs include US employee wages, cost of supplies consumed in the R&D process, cost of pre-production testing, US contract research expenses, and certain costs associated with developing a patent.

On December 18th, 2015, President Obama signed the PATH Act, making the R&D Tax Credit permanent. Beginning in 2016, the R&D credit can be used to offset Alternative Minimum tax for companies with revenue below $50MM and for the first time, pre-profitable and pre-revenue startup businesses can obtain up to $250,000 per year in payroll taxes and cash rebates.

Schulman 3D Printing and Ohio

Schulman has been recently expanding its 3D printing initiatives, and the State of Ohio is at the center of US 3D printing initiatives with multiple 3D printing innovation centers throughout the state. During 2017, Schulman publicly announced their 3D printing materials strategic product development program in conjunction with Prodways, the industrial plastics 3D product manufacturer.

Ohio University‘s Innovations Center has teamed up with the College of Arts and Sciences, Edison Biotechnology Institute, School of Arts and Design, and Health Sciences to bring 3D prototyping to the US Ohio region. The Ohio State University has the Center for Design and Manufacturing Excellence which has teamed up with IC3D, a leading manufacturer of 3D printing consumables and products, to apply 3D printing to a variety of industrial processes. Youngstown State University in Youngstown, Ohio has the Center for Innovation in Additive Manufacturing (CIAM).

Conclusion

The new Lyondell Schulman combination may be quite beneficial for the 3D printing materials sector and should be interesting to watch.

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Charles Goulding and Alize Margulis of R&D Tax Savers discuss the A. Schulman acquisition.