Sale of businesses: Lanxess to divest PU business; Goodyear to sell off rubber chemicals business

German speciality chemicals firm Lanxess recently revealed plans to sell its Polyurethane (PU) Systems business unit and has projected a lower profit target for 2023.

Lanxess says it now expects FY 2023 EBITDA pre exceptionals to amount to between EUR500 and 550 million. It attributed the profit adjustment to soaring energy prices and a decline in global demand, which have impacted its dividend payouts and profit prospects. Lanxess had previously projected an EBITDA of EUR600 million to EUR650 million for 2023.

The company cites low demand from almost all industries as a major contributing factor to the falling sales. Ongoing destocking by customers was also an issue, although this now appears to be on the decline, it said.

“The weak demand in the global chemicals industry persists, and we see no signs of recovery for the rest of the year,” said Matthias Zachert, chairman of the company’s board of management. “On the contrary, demand in the fourth quarter to date seems to be even weaker than expected.”

Meanwhile, in line with its ongoing business restructuring strategy, Lanxess has initiated plans to sell its PU business unit. The company aims to reduce cash outflows and decrease net financial debt by minimising dividends and divesting non-strategic assets.

The decision stems from Lanxess' strategic realignment efforts in recent years. The PU segment, which operates six production sites globally and employs approximately 400 people, no longer aligns with the group's strategic positioning, it says.

Earlier this year, Lanxess formed a joint venture with Anhui Hondon Capital Investment Co. integrating its high-performance materials business and acquiring US materials firm DSM's engineering materials business. The resulting revenue of approximately EUR1.27 billion from this collaboration played a significant role in reducing the company's debt in the second quarter.

Lanxess also joins a growing list of chemical industry giants, including SKC, Sabic, Wacker Chemie and Covestro, that have made decisions to shut down facilities, restructure operations, or implement workforce reductions due to challenging business conditions.

Meanwhile, elsewhere, in the US, under pressure by its largest investor to uplift its earnings, tyre maker Goodyear Tire & Rubber Company has announced a transformation plan to optimise its portfolio, deliver significant margin expansion and reduce leverage. The plan includes optimisation of its chemical business, the Dunlop brand and the off-the-road equipment tyre business, which will realise gross proceeds in excess of US$2 billion.

Goodyear’s chemicals business, with annual revenue of about US$1 billion, manufactures styrene-butadiene rubber, polybutadiene rubber and other materials and chemicals used in tyres.

The company has also initiated a specific and actionable cost reduction plan encompassing footprint actions and plant optimisation; purchasing; SAG; supply chain; and R&D. With many unique workstreams, Goodyear adds it has a clear line-of-sight to 100% of the cost savings, which it aims to be US$1 billion by end of 2025.

The company has identified opportunities in North America to optimise brand and tier positioning, rationalise SKUs, increase customer and channel profitability and enhance coverage in premium product lines.

With the benefits of cost reduction and top line actions, and net of the impact of expected asset sales and inflation, the company expects segment operating margin to double from approximately 5% in 2023 to 10% by the fourth quarter of 2025.

Goodyear says it will strengthen its financial profile through enhanced earnings, cash flow generation and debt reduction, moving the company closer toward an investment-grade rating. It expects debt reduction of approximately US$1.5 billion, net of approximately US$1.1 billion for restructuring.

The review was driven by Paul Singer’s activist hedge fund, Elliott Investment Management, which is one of Goodyear’s largest investors. Earlier this year Elliot Management proposed an overhaul of the tyre maker with the goal of lifting the company’s share price.

This plan follows a comprehensive evaluation by the Strategic and Operational Review Committee of the Board of Directors to evaluate all strategic, operational and financial opportunities to maximise value.

“Our transformation plan represents a clear path to create a more profitable and focused Goodyear,” said Goodyear Chairman/CEO/President Richard J. Kramer. “The Review Committee explored all value maximising opportunities and identified specific, detailed initiatives to streamline our portfolio, expand margins and fortify our balance sheet, and do so with expediency. Building on our strengths, this plan will enable Goodyear to enhance and expand our leadership position, deliver profitable growth across markets, create significant value for our shareholders and – ultimately – lay the foundation for success for the next 125 years.”

“This plan is the result of a comprehensive, bottom-up assessment of Goodyear’s business, led by the Review Committee,” said Laurette T. Koellner, Independent Lead Director of Goodyear’s Board. “The full Board supports this plan and is confident it will deliver substantial and durable value creation for shareholders. We appreciate the constructive input of our shareholders throughout this process.”

On behalf of Elliott Investment Management, Senior Portfolio Manager Marc Steinberg and Portfolio Manager Austin Camporin said, “We look forward to continuing our dialogue with the company as it implements these initiatives and works to deliver the substantial upside value that we see for all Goodyear shareholders.”

The Review Committee consisted of five directors, including two new independent directors appointed in July 2023. Over the course of 16 weeks, the Review Committee engaged in deep analysis and deliberation with assistance from industry-leading financial advisors and consultants. The review culminated in a detailed and actionable plan to streamline the business, accelerate growth and enhance competitive positioning. The full Board will oversee the execution of the Goodyear Forward plan and remains committed to the ongoing assessment of value-enhancing opportunities.

The company says it will provide regular updates to shareholders on its progress executing the plan.

(PRA)

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