Sterling Chemicals to exit styrene business

19-Nov-07
In a bid to pursue other strategic initiatives, Sterling Chemicals Inc. plans to exit its styrene business. The closure costs of the styrene facility are expected to be between US$10-15 mln, which include the payment of employee severance costs and decommissioning costs. An estimated US$3-5 mln will be be expensed during Q4-07, with the balance costs expensed during 2008. The cash flow impact of these costs will be offset by approximately US$90 million expected from the monetization of styrene-related working capital during the balance of 2007 and Q1-08. Reduction of workforce would result in severance costs of US$4-5 mln. In an effort to mitigate these disruptions, reduce costs and add value to its Texas City site, Sterling is actively engaged in third-party discussions regarding strategic initiatives that would require the services of a significant number of its dedicated styrenics employees. This decision follows the clearance under the Hart-Scott-Rodino Act of a styrene supply agreement with NOVA Chemicals Inc. ("NOVA") that has subsequently been assigned by NOVA to INEOS NOVA LLC ("INEOS NOVA") and INEOS NOVA's nomination of zero pounds of styrene under the supply agreement for the balance of 2007. The clearance under the Hart-Scott-Rodino Act caused the agreement to become effective and triggered a US$60 mln payment obligation to Sterling due November 27, 2007. This payment, combined with cash on hand of US$29 mln at September 30, 2007 and the actions discussed below, are expected to result in at least US$150 mln net available cash in addition to Sterling's unused credit lines. In accordance with the terms of the supply agreement, INEOS NOVA is expected to assume Sterling's contractual obligations for future styrene deliveries and Sterling has exercised its right to permanently shut down and decommission its styrene plant. Under the agreement, Sterling is responsible for its closure costs of the styrene facility and is also subject to a long- term commitment to not reenter the styrene business for a period of time. Sterling's acetic acid business continued its excellent performance during Q3-07 and its plasticizers business is performing as expected. Sterling expects to file Q3-07 financial results on November 14, 2007. In anticipation of this business closure, Sterling has been evaluating other projects to utilize its styrene-related facilities in alternative manufacturing processes. Sterling believes that successfully reengineering and deploying these assets at the Texas City site will have substantially greater value than selling the styrene-related equipment for their base metal value.
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