The proposed $1.62 billion deal for Lanxess to sell its half of the Arlanxeo synthetic rubber joint venture to partner Saudi Aramco is one of those solutions that should benefit all involved.
For Lanxess, it's the next step in the path CEO Matthias Zachert has taken the firm on since he was named the firm's top executive in 2014. That is to steer the materials firm away from cyclical businesses to more specialty areas that are technically driven and bring higher margins.
The German firm took a major step in that direction last year when it purchased Chemtura, but that also pushed Lanxess' debt back to a precarious level of about $3 billion—$1 billion above its level at the end of 2013 and more than double its debt of $1.4 billion in 2015.
So Zachert said the funds Lanxess will receive from divesting its Arlanxeo share will allow it to strengthen its financial base and start to bring its debt back down. And Lanxess will have no ties left to an SR business that once was the linchpin of the business spun off from Bayer in the early 2000s, but had become a business not in line with its future plans.
Saudi Aramco, conversely, sees benefits to being the full parent of Arlanxeo. It said the acquisition is key to its strategy to "become the world's foremost integrated energy and chemicals company." Arlanxeo, it said, diversifies the Saudi firm's downstream portfolio and upgrades its capabilities throughout the petroleum value chain.
And by being a fully owned subsidiary of Saudi Aramco, Arlanxeo would be in a much better position to leverage the strong feedstock position of its parent company. While still focusing on the global tire and automotive industries, the leading synthetic rubber firm would fit nicely with Aramco's quest to focus on increasing mileage efficiency and reducing engine emissions.
From the SR producer's perspective, it should be better off as a key asset as a full subsidiary of Aramco, rather than a JV holding that didn't fit with Lanxess' long-term objectives.