LEVERKUSEN, Germany—Lanxess A.G. has agreed in principle to buy DSM Elastomers for $416 million on a cash and debt-free basis.
The DSM N.V. unit produces EPDM under the brand name Keltan. The deal is subject to employee consultation and approval by antitrust authorities. It is expected to close in the first few months of 2011 and will place Leverkusen-based Lanxess as the largest EPDM producer in the world with total capacity of about 320,000 metric tons per year.
When the sale concludes, it will mark the exit of Herleen, Netherlands-headquartered DSM from the rubber business, having last year sold its Sarlink thermoplastic vulcanizate business to Teknor Apex Co. The businesses had been up for sale since September 2007.
Lanxess produces EPDM in Marl, Germany, and Orange, Texas, with a combined annual capacity of 120,000 tons. DSM operates an EPDM plant in Sittard-Geleen, Netherlands, and can produce 160,000 tons of the elastomer a year.
DSM's other EPDM facility is based in Triunfo, Brazil, with an annual capacity of 40,000 tons.
Lanxess said it plans to base the headquarters of the combined EPDM businesses in Sittard-Geleen.
One of the key elements of the deal will be the construction of an EPDM plant in the Asia-Pacific region.
No plans for that project were revealed with the announcement, but the DSM sale document emphasized the need for more capacity in the world and specifically that region, while Lanxess has previously said it needs to add capacity in that part of the world.
DSM Elastomers once had an EPDM joint venture in Ciba, Japan, but closed that and its only North American EPDM facility, in Addis, La., in 2004. The business has about 420 employees worldwide and was expected to post sales of about $510 million in 2010.
Lanxess CEO Axel Heitmann said in a conference call discussing the deal that it is a perfect fit to his firm's strategy of buying businesses that either strengthen or complement its portfolio. It will become part of Lanxess' Technical Rubber Products business, which also includes polychloroprene rubber, HNBR, ethylene vinyl acetate rubbers and NBR.
An important part of the purchase, he said, will be gaining access to DSM's Keltan ACE technology, which stands for Advanced Catalysis Elastomers. DSM unveiled the technology—licensed from Nova Chemicals—in 2007 and said it allows it to make EPDM with improved properties.
Heitmann said the ACE technology will enable it to manufacture special grades of EPDM that it can't currently because it doesn't have access to the know-how, and it also will help it increase manufacturing efficiency.
“The DSM Elastomers business is a global player,” he said. “And not only is it a global player, it has a leading technology and a strong brand.”
Heitmann added that over time the ACE technology will be integrated into existing Lanxess EPDM factories.
Matthias Zachert, Lanxess chief financial officer, said his company will use its technical expertise to upgrade the ACE process and its global reach will enable it to more broadly bring the new technology into the marketplace. While DSM began selling the ACE-based EPDM in late 2008, it really didn't introduce it on a wide-scale basis.
“It's a global market, and this global market asks for global suppliers,” Zachert said in the conference call. “With our worldwide distribution and sales force, we will bring it into the market with lower throughput costs. à It will be good for our customers, and that is what we will focus on.”
The DSM business also will benefit by being part of a company where rubber is a key part of the equation, Zachert said, noting that Lanxess has a strong track record in integrating acquisitions.
“With EPDM, we bring this non-core business for DSM back to a core business for Lanxess,” he said. “We are perceived and known for successfully running rubber, and we will of course do that with the EPDM business as well.”
Feike Sijbesma, CEO and chairman of the DSM Managing Board, said in a statement the divestiture will complete its “Vision 2010” strategy to become a focused life sciences and materials sciences company.
“This transformation has been achieved within our desired time frame and at favorable conditions for our shareholders and employees,” he said.