COLOGNE, Germany—Lanxess A.G. plans to sell its remaining 50 percent stake in Arlanxeo to its joint venture partner Saudi Arabian Oil Co.
The two companies signed the sales agreement on Aug. 8. The venture is valued at about $3.47 billion with sales of about $3.7 billion in 2017. Lanxess said it will receive $1.62 billion from the transaction, and plans to use the proceeds to strengthen its financial basis and reduce its net debt.
The transaction is subject to approval of the relevant antitrust authorities. At the same time, information or consultation of the competent employee representative bodies will take place. The parties expect to complete the transaction by the end of 2018.
"With the envisaged transaction we would complete another important milestone of our strategic transformation earlier than originally planned," Lanxess CEO Matthias Zachert said in a statement. "This should allow us to even better focus on our position as a leading player in mid-sized specialty chemicals markets. At the same time, we increase the resilience of our business, strengthen our financial basis and gain additional strategic flexibility for further growth."
Debt a key driver
Lanxess' debt has been a driving force behind a number of strategic realignment moves since Zachert took over in April 2014. The firm's initial restructuring move, "Let's Lanxess Again," resulted in more than 1,000 layoffs, a realignment of its EPDM and neodymium-based performance butadiene rubber production—affecting about 140 employees worldwide—and culminated with the formation of Arlanxeo, of which about $446 million was used to reduce its net debt.
The moves resulted in Lanxess' debt decreasing to $1.4 billion in 2015 compared to $2 billion at the end of 2013.
Since 2015, however, Lanxess has gradually been shifting away from rubber and focusing on mid-sized specialty chemicals markets through a variety of deals under Zachert's tenure. The most notable coming in 2017, when it acquired Chemtura—one of the world's leading suppliers of flame retardant and lubricant additives—for about $2.57 billion. It also paid about $230 million to acquires Chemours Co.'s Clean and Disinfect business, which closed in August of 2016.
While deals like Chemtura have realigned the firm's portfolio, they've also help drive Lanxess' debt back to its pre-2014 levels. After 2016 Lanxess reported its debt increased 97.7 percent to $2.77 billion—higher than what Zachert originally inherited.
The firm reported net debt at $3.05 billion for the first six months of 2018, up 16.9 percent compared to the end of 2017.
Sales have increased 14.4 percent to $4.22 billion compared to the first half of 2017. Lanxess reported $11.2 billion in sales for 2017 and employs 19,200 in 25 countries. It operates 74 production sites.
Shifting from rubber
Lanxess' deals, especially Chemtura, have significantly shifted Lanxess' portfolio away from rubber and deeper into the specialty chemicals and additives markets.
The Chemtura deal brought about a realignment of Lanxess' additives business, combining its Rhein Chemie and Additives business units into a new Specialty Additives segment valued at about $2.14 billion with 2,900 global employees.
The firm also gained a urethanes presence, which was set aside as its own Urethane Systems unit and joined Lanxess' existing High Performance Materials unit to for a new business segment: Engineering Materials.
Lanxess had carved out and contributed its synthetic rubber business—the Tire & Specialty Rubbers and High Performance Elastomers business units—to Arlanxeo when it formed the 50-50 venture with Aramco in 2016.
At the time, Arlanxeo was valued at about $3.1 billion and received $1.34 billion from Aramco for its initial share. The venture consists of 20 production facilities in nine countries across Europe, Asia and the Americas with about 3,800 employees and additional support staff.
The Tire & Specialty Rubbers unit produces butyl rubber, solution styrene-butadiene rubber, neodymium-polybutadiene and emulsion-styrol butadiene rubber. The High Performance Elastomers unit produces EPDM, chloroprene rubber, ethylene-vinyl acetate rubber, hydrogenated nitrile rubber and nitrile butadiene rubber.
Arlanxeo produces high-performance rubbers used in the production of tires, hoses, belts and seals serving the automotive, construction and oil and gas industries.