COLOGNE, Germany—German chemical company Lanxess A.G. is discussing the sale of a minority stake in its synthetic rubber unit with potential buyers, including Saudi Arabian Oil Co., according to people with knowledge of the matter.
Two proposals already have been submitted, with one party interested in a stake of about 40 percent, said two people who asked not to be identified because details of the sale process are private. Lanxess confirmed in an e-mailed statement that it's in talks with potential partners for its SRbusiness, which generated about $5.1 billion in 2014 sales. The company didn't give more details.
Lanxess CEO Matthias Zachert is looking for a partner with access to cheap crude oil and gas-related raw materials amid overcapacity and pressure on prices in the market for synthetic rubber used in car tires. Saudi Aramco, the world's largest crude exporter, would have the financial clout to aggressively expand the business globally to take on low-cost competitors in emerging markets, including India's Reliance Industries Ltd. and Russia's Sibur Holding OJSC.
Zachert, who took over in April, aims to restore earnings and tackle a portfolio still heavily geared to the automotive and tire industries, where competition from Asian rivals had stiffened. Upon taking the helm, Zachert said that Cologne-based Lanxess had lost its “cash discipline,” with a hefty spending and expansion program. Last month, the company said fourth- quarter profit was better than expected.
Potential buyers of a stake in Lanxess's synthetic rubber division, the company's largest segment, have been asked to present letters of intent containing a draft proposal, said one of the people. Representatives for Lanxess and Saudi Aramco declined to comment when asked about the talks.
Oliver Schwarz, an analyst at MM Warburg, estimates the performance polymers unit of Lanxess is worth about $3 billion, based on expected estimates for 2015 earnings before interest, taxes, depreciation and amortization.
For Saudi Aramco, teaming up with Lanxess would be a significant step in its ambition to move from oil production toward chemicals and products closer to the consumer. It would help the company emulate petrochemical maker Saudi Basic Industries Corp., which set up a partnership with Exxon Mobil Corp. in 1980.