‘Very good timing’ for ARLANXEO stake sale - LANXESS CEO

Source: ICIS News

2019/03/14

COLOGNE, Germany (ICIS)--The agreement for LANXESS to divest its remaining 50% stake in synthetic rubber producer ARLANXEO to joint venture partner Saudi Aramco was well-timed, the CEO at the German chemicals producer said on Thursday, amid a bearish outlook for automotive sector demand this year.

EconomyThe Germany-headquartered chemicals producer had been expected to retain its remaining position in the synthetic rubber business that formerly made up the heart of its revenues until 2020, particularly in light of cheap feedstock agreements with Saudi Aramco that were coming into effect this year.

The €1.4bn price tag offered, despite an erosion in earning power for the business over the last couple of years, and the opportunity to reduce exposure to crude oil-based feedstocks and increase its specialty chemicals focus, prompted the company to take an earlier than expected exit, according to LANXESS' CEO Matthias Zachert.

“[LANXESS is] no longer so dependent on oil prices, and we have now zoomed in on specialties… we still have automotive activities, but are no longer as dependent,” he said, speaking to reporters at the company’s headquarters in Cologne, Germany.

“If you look at the customer industries … it was very good timing indeed,” he added.

LANXESS published earlier on Thursday healthy fourth-quarter and annual results, positively impacted by the ARLANXEO divestment.

ARLANXEO's earnings before interest, taxes, depreciation and amortisation (EBITDA) stood at €350m in 2018 compared to €400m in 2015, according to LANXESS.

The move to diversify away from the rubber sales, first through folding the assets into a joint venture before eventual full divestment, has reduced the automotive and tyre sectors from 45% of company revenues in 2014 to 20% in 2018.

So far, the company has used €200m of the proceeds to pay down pension obligations and initiated a €200m share buy-back, leaving €1bn in dry powder.

The timing of the sale prompted speculation that the company might have an acquisition target in its sights, but there is no strong impetus to strike new deals, particularly as bearish macroeconomic conditions are starting to cool valuations, Zachert (pictured) added.

“We have a very strong balance sheet for projects in the future,” said the CEO.

“That could include acquisitions but we are not driven, we have got time to wait and see, and assess business activities in the important industries. Timing is everything.”

The company is open to the prospect of a large-scale acquisition as well as to bolt-on deals, depending on the availability and pricing of assets on the market, the CEO added.

Pictures sources: Reso/REX/Shutterstock and LANXESS