Japanese plastics manufacturer Mitsubishi Rayon has agreed to acquire British rival Lucite International for $1.6 billion (£1 billion) tot expand production bases in Europe and the US.

The news of the deal led to a dramatic rise in Mitsubishi Rayon's share price today. The stock soared 25 yen, or 11 per cent, to close at 245 yen, on the Tokyo Stock Exchange, the biggest gain since 30 October.

Tokyo-based Mitsubishi Rayon said it would buy to strengthen its production of methyl methacrylate, used to make resins and plastics. The acquisition will be completed in January, Mitsubishi Rayon said in a statement.

The deal values Lucite slightly higher than its net debt of $1.5 billion, leaving very little profit for its majority shareholder Charterhouse, the private equity group, which acquired the company in 1999 and has struggled to sell it for two years.

Charterhouse had hoped to sell Lucite for $2 billion. But it was forced to accept a lower price after the company failed to meet a banking covenant in September and was on the brink of breeching its loan agreements. Banks granted it a covenant waiver to complete the deal with Mitsubishi last week.

"The business is certainly worth between $2 billion and $2.5 billion in normal circumstances, but we are not experiencing normal circumstances," Ian Lambert, chief executive of Lucite, said in defence of the sale. He said the company's margins had been compressed by higher oil and gas prices in the first three quarters of the year, which pushed up its raw material costs.

Vendors are placing greater emphasis on access to financing as the effects of the credit crisis continue to dampen deal making. Mergers and acquisitions have slowed dramatically because banks have become more selective about how much they will lend, and which companies they will lend to.

For firms that can still access the debt markets, funding is generally more expensive and often only available for a shorter timeframe. This purchase is supported by borrowings from the company's shareholder Mitsubishi UFJ Financial Group, Japan's biggest bank by assets.

The funding commitment helped propel Mitsubishi Rayon ahead of rival bidder Saudi International Petrochemical Company, or Sipchem, after due diligence, sources said. Sipchem was bidding jointly with Saudi Arabian investment company, Jadwa Investment.

Mitsubishi Rayon expects synergy from the acquisition to generate a 5-billion yen profit in the first year and more than 10 billion yen after the second year, the company's president Masanao Kanbara said at a briefing.

Lucite, created by the 1993 merger of the acrylics businesses of Dupont and ICI, saw its earnings before interest, tax, depreciation and amortisation fall about a third from £114 million last year. It employs 1,800 staff in 10 countries.

Its products include coatings for mobile phones, solar panels, and the "tombstones" that investment bankers use to commemorate successful takeovers. The company, known for its eponymous bathroom fittings and Perspex signs and windows, was particularly attractive to Mitsubishi as it has recently opened a new plant using its long-awaited Alpha technology in Singapore.

Alpha technology can make acrylic using ethylene, carbon monoxide and methanol, which are about a third cheaper than traditional raw materials, such as acetone.

Merrill Lynch and Deutsche Bank advised Lucite, while Credit Suisse and Bank of Tokyo-Mitsubishi UFJ advised Mitsubishi in the transaction.