Lanxess to acquire Chemtura; EUR2.4 bn deal to create major additives unit

Germany-based speciality chemicals firm Lanxess, which two years ago was in the red and has achieved a turnaround based on various adjustments to its products http://plasticsandrubberasia.com/june2016/company9.html and is now flush with funds, plans to acquire US-based Chemtura Corporation, a global provider of flame retardant and lubricant additives. With the largest acquisition in its history, Lanxess says it is building on its own additives portfolio, which it already offers through its subsidiary Rhein Chemie. Lanxess also said its announced share buyback of around EUR200 million will not be pursued further.

The transaction with an enterprise value of approximately EUR2.4 billion will be financed by Cologne-based Lanxess using existing liquidity and issuing new debt. The company said it has secured bridge financing, which will quickly be refinanced via senior bonds and a hybrid bond. The deal is expected to close around mid-2017.

Chemtura shareholders will receive US$33.50 per share in cash for each outstanding share of common stock held, which represents a 18.9% premium to the stock’s closing share price of US$28.18 on September 23, 2016.

Headquartered in Philadelphia, Pennsylvania, Chemtura has 20 sites in 11 countries and approximately 2,500 employees worldwide. The company reported sales of around EUR1.5 billion in the last four quarters with EBITDA pre exceptionals of approximately EUR245 million (EBITDA margin of approx. 16%). Approximately 45% of Chemtura’s revenue is generated in North America. In addition to additives, Chemtura’s portfolio includes urethanes and organometallics.

“With this acquisition, we are forming a champion in the field of additives and are strengthening our already profitable portfolio,” said Matthias Zachert, Chairman of the Board of Management of Lanxess. “Through the acquisition, we are further implementing our strategy to become a more resilient and profitable chemical company. We are significantly building on our competitive positioning in medium-sized markets and increasing our presence in North America. Lanxess is taking a next and major step forward on its growth path.”

For Lanxess, the acquisition of Chemtura will be accretive to earnings per share (EPS) in the first fiscal year, with annual synergies of approximately EUR100 million expected by 2020.

Chemtura’s two additive segments form the main pillars of the company’s business. Both will, together with Lanxess’s Rhein Chemie Additives business unit (ADD), form the new Performance Additives segment after the closing of the transaction. ADD already offers a wide range of speciality additives and service products for the plastics, rubber, lubricants and colorants production, and employs around 1,600 employees worldwide at more than 20 locations.

The first pillar of Chemtura’s additives business includes lubricant additives and synthetic lubricants for industrial applications, such as in power generation and aviation. Chemtura also manufactures the necessary precursors and intermediates. Lanxess expects the industrial lubricant additives market to grow at an annual rate of 3-4% in the medium term, primarily driven by steadily increasing requirements with respect to the performance and environmental sustainability of lubricants.

The second pillar is mainly comprised of the brominated flame retardant additives, elemental bromine and further bromine derivatives businesses. Brominated flame retardant additives are used because of their high effectiveness, especially in the construction industry for insulation and in the electronics industry. Chemtura is a major supplier of bromine and brominated products and is well positioned due to its backward integration.

Rhein Chemie Additives already has a competitive position in the phosphorous-based flame retardants business and features a backward integrated value chain. Lanxess also expects medium-term growth rates of 3-4% per year in the field of flame-retardant additives.

New business fields for Lanxess will be Chemtura’s urethane business, a major provider for hot-cast prepolymers and for special, aqueous urethane dispersions and polyester polyols. These are components for special polyurethanes, which are used mainly in the construction, mining, oil/gas, sports and electronics industries. For example, rollers for conveyor belts and roller skates are manufactured from these polyurethanes. The urethanes business will be integrated into Lanxess’s High Performance Materials segment, in which the high-tech plastics business is anchored.

Chemtura is counted among the major companies worldwide in organometallics. Organometallics are chemical compounds that are used, among other things, as catalysts in polymer production and for synthesis of fine chemicals and pharmaceuticals. This business will in the future be part of Lanxess’s Advanced Industrial Intermediates business unit.