The specialty chemicals company Lanxess founds a new plastics giant together with the financial investors from Advent. CEO Matthias Zachert (54) wants to use the billion dollar deal to reduce dependence on the auto industry. Together with Advent, Lanxess takes over the plastics business of the Dutch chemical company DSM for around 3.7 billion euros. It is to be incorporated into a new joint venture in which Advent will hold at least 60 percent and Lanxess will hold up to 40 percent, as the Cologne-based group announced on Tuesday.
At the same time, Zachert is also separating its own business with high-performance polymers, which are mainly used in the automotive industry, and transferring it to the joint venture. Lanxess will receive a payment of at least 1.1 billion euros for this. The new joint venture is to be fully financed by Advent’s equity and debt.
For Lanxess, this changes the previous orientation. After closing the deal, which is expected in the first half of next year, the business portfolio consists of three specialty chemicals segments. In the future, Lanxess intends to focus on the areas of basic and fine chemicals, additives such as lubricants, flame retardant additives or rubber chemicals, and specialty chemicals ranging from disinfectants to water treatment technologies.
“Lanxess is once again significantly less dependent on economic fluctuations,” said CEO Zachert, explaining the decision. So far, the Cologne group has made around 20 percent of its sales with the automotive industry and has felt its fluctuations noticeably in recent years. Lanxess’ CO2 emissions are also expected to fall as a result of the deal, since the production of plastics is very energy-intensive. “In addition, we as Lanxess are strengthening our balance sheet with the proceeds from the transaction and gaining new scope for the further development of our group,” said Zachert.
Lanxess share increases by more than eleven percent
Zachert wants to use the proceeds to reduce debt and buy back shares of up to 300 million euros. The project was well received by investors: Lanxess shares rose more than eleven percent on Tuesday and were by far the biggest winners in the MDax small-cap index.
The Cologne-based company can only exit the joint venture with Advent after three years at the earliest and then sell its stake to the financial investor at the same valuation. The partners expect significant synergies from the merger of the two businesses. The combined company has sales of around EUR 3 billion, about half of which comes from the two businesses, and a result of around EUR 510 million. Altogether around 4000 people are employed. The DSM division, which according to Lanxess is said to have recently generated operating margins of around 20 percent, is one of the leading suppliers of special materials used in the electrical and electronics industry and in consumer goods.
DSM wants to merge with Firmenich
The income from the business should come in handy for the Dutch DSM group. The company not only announced the sale of the division, but also wants to merge with the Swiss fragrance and flavor manufacturer Firmenich. The DSM shareholders are to hold 65.5 percent of the new group, the Firmenich owners 34.5 percent. They also get 3.5 billion euros in cash. As a merged company, DSM-Firmnich, which together have sales of 11.5 billion euros, wants to attack Evonik and Symrise in particular.