11 July 2011 17:22 [Source: ICIS news]
By Nigel Davis
And the $1.4bn acquisition (€980m) of biocides maker Arch Chemicals makes a good fit, that helps the Switzerland-based company do just that.
The two companies have been involved in one way or another for 20 years – before the Arch Chemicals name was adopted. And for almost two years now they have sold one another’s products in their own markets.
They began talking at the end of last year about widening their agreements.
In some respects it has been a question of acquire or be acquired for Arch. The new tie-up, which offers Arch Chemical shareholders a 36.7% premium on the average closing price of the company’s shares over the last 30 days of trading, is attractive. It offers Lonza the chance to create a world-leading microbial products platform, and significantly broaden its own biocides footprint.
Lonza talks about “balancing” the life science platform. A successful acquisition of Arch Chemicals would take Lonza’s annual sales of Swiss franc (Swfr) 2,680m ($3,190m) in 2010 to something like Swfr4,116m – and lift the microbials slice of the pie from 14% to 43%.
Lonza has been stung in recent years by the volatility of its custom manufacturing business, particularly in 2009 when the loss of a contract led to a profits warning. This deal expands the geographical footprint for microbial products and more by lifting sales in the growth markets of
This is a big deal for Lonza – the company’s staff will expand from 8,200 to more than 11,000. Management reckons it can cut costs – largely corporate overhead by eliminating overlap – and save $50m by the second year following completion. One-time integration costs are estimated at $85m over two years. It is challenged to lift profit margins in the Arch Chemicals businesses to match its own.
But it is the opportunities to grow microbials products, to cross-sell products and extend the market and geographical reach that are the real attraction.
Lonza estimates global microbial products growth of between 4% and 6% a year. Microbial products are used in applications as diverse as water treatment – domestic and industrial – oil production, hygiene and wood treatment.
The two companies’ microbial protection businesses are largely complementary – Lonza sells into industrial markets, whereas Arch products are used in swimming pools and other domestic treatment situations.
They say that the hygiene, water treatment, materials protection and personal care segments are expected to be the most important growth sectors.
“The acquisition of Arch Chemicals is the next logical step in Lonza’s life science-focused strategy,” Lonza CEO Stefan Borgas says.
The deal creates a global platform within the portfolio which reduces the dependency on pharmaceuticals – but not on life sciences.
“It will allow us to expand our non-pharma life science business to achieve a well-balanced profile, based upon two world-leading growth businesses: pharmaceutical contract manufacturing and microbial control.”
Borgas also stresses that this is not a move into specialty chemicals for Lonza. Arch Chemicals has a large number of formulation plants, but little in the way of primary chemicals manufacture.
The Arch Chemicals performance products businesses, which had sales of $186m last year, out of the corporate total of $1.4bn, will be divested. These included polyols and urethanes-related chemicals, hydrazine propellants and hydrates. The divestment of the urethanes part of this segment has been actively pursued by Arch, and will be followed through by the Swiss concern.
($1 = Swfr0.84 / €0.70)
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