By Dominique Vidalon and Ron Bousso
PARIS/LONDON (Reuters) - French chemicals group Arkema (PA:AKE) has offered to buy oil major Total's adhesives business Bostik, which makes Blu-Tack, for 1.74 billion euros (1.37 billion pounds).
Total, under pressure from shareholders to improve its cash flow and raise dividends, has embarked on a major divestment programme. A sale of Bostik at that price would increase its announced disposals this year to near $20 billion (12.21 billion pounds) - at the top of its target range of $15-$20 billion.
For Arkema, which said it hoped to finalise the deal in the coming months, buying Bostik would expand its position in a fragmented global adhesive and sealants market. Reuters reported last week that France's Total had put Bostik up for sale.
Bostik, which makes adhesives and sealants used in products ranging from aircraft components and building materials to diapers, had 2013 sales of 1.5 billion euros and has 4,900 staff worldwide. The company, whose main rivals are Henkel (DE:HNKG_p) and H.B. Fuller (N:FUL), has been a Total unit since 1990.
Arkema's offer values Bostik at 11 times the company's estimated 2014 earnings before interest, taxes, depreciation and amortisation (EBITDA) of 158 million euros, Total said.
PRESSURE
Arkema, itself spun off from Total in 2006, said the deal would boost its cash flow from the first year and earnings-per-share from the second year. Total has given Arkema a period of exclusivity to pursue its offer, the oil group said, without giving further details.
Arkema plans to fund the deal through a 350 million euros rights issue, the issuance of hybrid securities of between 600 million and 700 million euros, and a senior bond issuance for the balance of between 500 million and 600 million euros.
Total, like other oil majors, has been under pressure to cut costs and return more cash to shareholders after years of large investments. It is working on several asset disposals as it seeks to achieve free cash flow before dividends of $10 billion in 2015 and $15 billion in 2017, versus $2.6 billion in 2013.
The oil company has put one of its offshore Nigerian oil fields up for sale after a 2012 deal with China's Sinopec Corp (SS:600028) failed.
The announcement of the offer for Bostik comes ahead of a strategy day Total will be holding in London on Monday at which investors are expecting updates on asset sales and cost cuts.
"I wouldn't be surprised if they announced on Monday a further asset sale programme beyond 2014 because their production is going to be disappointing over the next year or so," said Iain Reid, analyst at London-based BMO Capital Markets.
(Reporting by Dominique Vidalon in Paris and Ron Bousso in London; Editing by Gus Trompiz and Pravin Char)