Mitsubishi Rayon acquires American rival Lucite for $1.6 billion

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.