LANXESS to grow North America footprint with Chemtura buy

(re-leads, adds financing information, analyst commentary, post-acquisition company structure)

LONDON (ICIS)–LANXESS is to acquire specialty chemicals producer Chemtura to increase its presence in North America and strengthen its additives division, the Germany-headquartered producer said on Monday.

The two companies have signed a definitive acquisition agreement, in which Chemtura shareholders will receive $33.50/share, which represents an 18.9% premium to the US firm’s closing price on 23 September.

LANXESS values the deal at around €2.4bn, while Chemtura assesses the price tag at around $2.5bn.

LANXESS said it will finance the acquisition mainly through €1bn-1.25bn in senior bonds senior and €500-750m in hybrid bonds, as well as from existing liquidity, with strong cash flow allowing for rapid deleveraging following the close of the deal.

The acquisition is expected to be completed around mid-2017.

US-based Chemtura is a producer of high-quality flame retardants and lubricant additives, as well as urethanes and organometallics.

The purchase is to create a new LANXESS division, performance additives, made up of both company’s additives units, with an estimated €2bn in annual sales and earnings before interest, taxes, depreciation amortisation (EBITDA) margin of around 20%, according to the company.

LANXESS expects the acquisition for be earnings accretive on the first fiscal year, with annual synergies estimated at €100m by 2020.

“With the largest acquisition in its history, LANXESS is building on its own additives portfolio and will become one the world’s major actors in this growing market,” the German producer said.

In an analyst note, banking group Credit Suisse predicted that the acquisition will help replace anticipated lost earnings from the deconsolidation of ARLANXEO, the company’s synthetic rubber joint venture with Saudi Aramco.

The purchase will also drive LANXESS’ ongoing campaign to reduce its exposure to the synthetic rubber sector, which should fall to 16% of group earnings following the close of the Chemtura purchase.

“We think the logic and the financials of the deal are great,” said Baader Bank in an analyst note.

“As we think that LANXESS might be able to achieve even higher synergies due to the strong sales synergy upside coming from perfect marketing & distribution overlap, the deal might look even more interesting at a second glance.”

Chemtura – which is headquartered in Philadelphia, Pennsylvania – has 20 sites in 11 countries and has about 2,500 employees globally.

In the last four quarters, the US firm generated sales of about €1.5bn, about 45% of which is generated in North America.

The company posted pre-exceptional EBITDA of about €245m during the same period, according to LANXESS.

“We are significantly building on our competitive positioning in medium-sized markets and increasing our presence in North America. LANXESS is taking a next and major step forward on its growth path,” LANXESS chairman Matthias Zachert said.

LANXESS has about 16,700 employees in 29 countries and has 55 production site worldwide. It generated sales of €7.9bn last year.

Additional reporting by Pearl Bantillo, Tahir Ikram