Lanxess to acquire Chemtura for $2.5 billion

COLOGNE, Germany—Lanxess A.G. is making a big splash in the additives market.

The Germany-based specialty chemicals company has signed an agreement to acquire Chemtura Corp., a U.S.-based flame retardants and lubricant additives producer, for about $2.5 billion. The deal is projected to close by mid-2017, and if approved it would triple the size of Lanxess' additives business.

The transaction is subject to approval by Chemtura shareholders and regulatory authorities. Shareholders of Chemtura will receive $33.50 per share in cash for each outstanding share of common stock held, representing an 18.9 percent premium to the stock's closing share price of $28.18 as of Sept. 23.

“With this acquisition, we are forming a champion in the field of additives and are strengthening our already profitable portfolio,” Lanxess CEO Matthias Zachert said in a statement. “Through the acquisition, we are further implementing our strategy to become a more resilient and profitable chemical company.”

He added that the acquisition builds on Lanxess' position in medium-sized markets and increases its presence in North America. The firm projects about $111.4 million in cost synergies by 2020.

Chemtura shareholders will receive $2.1 billion, with the rest of the purchase price going toward the assumption of Chemtura debt and pension obligations. Lanxess said it will finance the acquisition through debt and existing liquidity.

“Lanxess made the best financial proposal for our shareholders,” Chemtura CFO Stephen Forsyth said. “But I think what sets them apart from a strategic perspective is the complimentary nature between their businesses and our businesses. This has always been about what's the next step for Chemtura's businesses. Here we have a company where there are very few direct overlaps between what we do, and they serve many of the same applications that we serve. So for both companies you get a natural product line extension, and we're better able to serve those customers and applications.”

Lanxess said Chemtura's additives business will be merged with its Rhein Chemie Additives business unit, which would in effect triple the unit's sales to about $2.7 billion. Middleburry, Conn.-based Chemtura operates 20 facilities in 11 countries with about 2,500 employees while Rhein Chemie employs about 1,600 at 20 plants.

Anno Borkowsky, head of Rhein Chemie Additives, said Chemtura's urethanes business will fall under Lanxess' High Performance Materials segment as a stand alone new business unit. Chemtura's organometallics business will fit into Lanxess' Advanced Industrial Intermediates business unit as an additional business line.

The urethanes and organometallics businesses represent new products for Lanxess. Forsyth described it as a natural alignment for the two product lines, with Lanxess currently operating on more the engineered plastics side and Chemtura's urethane business bringing a hot cast elastomer presence.

“Chemtura holds a competitive position in industrial lubricant additives,” Borkowsky said in an email. “The business has a global setup, operating in 10 sites around the world. Moreover, Chemtura manufactures the necessary precursors and intermediates. Combined with our own additives portfolio, we will be a major supplier for industrial lubricant and will further strengthen our competitiveness through our integrated value chain.”

The two firms have minor overlaps within their respective phosphorous based flame retardants, but Forsyth said Chemtura's position is very small, and the combined business would not be very sizable in comparison to the total company.

“Chemtura's flame retardant business is an ideal complement for Lanxess,” Borkowsky said.

Regionally, about 45 percent of Chemtura's sales were generated in North America and 30 percent in Europe with the remaining coming from other regions, primarily Asia, Forsyth said. Lanxess' additives business is firmly rooted in Europe with a strong setup in Latin America, Borkowsky said.

Both executives said Chemtura's employees will transfer with the business. Borkowsky added that no decisions have been made yet regarding the management structure.  

“During the integration phase, we will analyze the current structures very thoroughly in order to create the most ideal setup for the combined businesses,” the executive said. “Our aim is to put the best people in place, regardless if they are from Lanxess or Chemtura.”

Zachert said that the transaction was a significant step toward creating the “new Lanxess.”

The firm has had a busy 2016, starting with the carve out of its rubber-related business units—Tire and Specialty Rubbers and High Performance Elastomers—and selling a 50 percent stake to Saudi Aramco for $1.3 billion—to form Arlanxeo, a joint venture valued at $3.1 billion focused on synthetic rubber. Jan Paul de Vries was named CEO of the Netherlands-headquartered joint venture in March.

At the time Lanxess said it plans to invest about $452 million of the proceeds toward organic growth, specifically highlighting Performance Chemicals as a segment of focus, the same segment that houses its Rhein Chemie Additives business unit.

“Lanxess can deliver on its strategy to focus on less cyclical, midsized markets and to participate more strongly in the ongoing growth in North America,” Borkowsky said. “We are able to diversify our end-market exposure and to develop into a more stable, efficient and cash generating company.”

But Lanxess also utilized about $446 million from the proceeds it received from Aramco to reduce its financial debt position and now will take on more to acquire Chemtura. However, Borkowsky said the firm is on solid financial footing.

“During the past 24 months, we have been constantly improving our balance sheet in order to build a strong platform for growth,” Borkowsky said. “The strong cash flow of the combined businesses shall allow a rapid deleveraging. All in all, Lanxess is standing on a solid foundation.”