INTERVIEW: LANXESS sharpens focus on North America for future investment – CEO

NEW YORK (ICIS)–Germany-based LANXESS will focus predominantly on North America for future investments while maintaining its asset base in Europe and putting on hold any major projects in China, its CEO said.

“We will expand our local footprint here in the US and we will continue maintaining our asset base in Europe, but we will not go for major growth investments in Europe unless they relate to highly accretive debottlenecking. Growth investments will predominantly be made in North America,” said Matthias Zachert, CEO of LANXESS, in an interview with ICIS in New York.

The US is the world’s largest economy and the second largest chemical market with strong growth prospects because of the reindustralisation trend, low energy costs and a well-educated workforce, he added.

“We were lucky in the last four years to make heavy US investments inorganically, all in the right strategic sweet spots. We basically substantially expanded our assets and market share in the US – a region where you want to be in chemicals nowadays,” said Zachert.

In line with its strategic direction announced in 2017, LANXESS’s three largest acquisitions were US-based specialty chemicals businesses – Chemtura in 2017 ($2.5bn), Emerald Kalama Chemical in 2021 ($1.08bn) and IFF’s microbial control business in 2022 ($1.3bn).

The most recent – IFF’s microbial control business – consists of legacy Rohm and Haas, DuPont and Dow biocides businesses in North America – presenting a unique opportunity to build a world-class biocides business, according to the CEO.

LANXESS had already been a major player in biocides and antimicrobials, and in January 2021, acquired France-based biocides company INTACE which produces specialty fungicides for paper packaging.

One positive aspect of the overall geopolitical turmoil is that Europe and US relations have improved significantly, the CEO noted.

“I’m happy to see that despite this terrible situation we have in east Europe, what I’m feeling positive about is that European/US ties are strengthening once again and the interaction between the two regions will clearly be reinforced going forward. I clearly consider that as a positive,” said Zachert.

CHINA INVESTMENTS PROHIBITIVE
While LANXESS’s strategic plan back in 2017 included growth investments in Asia, any such investment – at least in China – would be impossible today with the COVID-19 lockdowns, he noted.

“If I would like to build something in China, I couldn’t because I couldn’t send any engineers there because they would be quarantined immediately. Who wants to travel to China if you’re locked up in a hotel for one to two weeks?” said Zachert.

“This is prohibitive for direct investments. Once China opens borders again, we can look at this again. But in a situation where borders are literally closed and cities from one day to the other are going into one to two week lockdowns, from a pragmatic and daily operational side, this prohibits any growth expansion,” he added.

NEXT STEPS IN THE TRANSFORMATION
LANXESS has already undergone a huge transformation in the past four to five years, with targeted acquisitions of specialty chemicals businesses along with divestitures of major commodity assets, such as the synthetic rubber business to Saudi Aramco (ARLANXEO JV formed in 2016, full stake divestiture in 2018).

As it did with synthetic rubber, LANXESS also plans to eventually exit its nylon 6 (polyamide 6) business after joining forces with private equity firm Advent International to combine its High Performance Materials (HPM) business (excluding urethanes) with DSM Engineering Materials.

LANXESS will receive at least €1.1bn once the combination with DSM Engineering Materials closes – expected in H1 2023 – and retain a stake of up to 40% in the joint venture. It will have the option of divesting its stake in the JV to Advent after three years.

For now, LANXESS management will focus on two big M&A-related projects – the integration of the LANXESS and DSM businesses to form a global polyamide powerhouse, along with the integration of the IFF microbial control business.

“We are creating a global champion here and this needs management [attention], so for the next 12 months my focus is for the organisation to help create a new global champion in polyamides, and to also accelerate and excel in the integration of the IFF microbial control business. Here we will create an undisputed global biocides champion as well,” said Zachert.

“Besides this, we want to master the storm in the global economy and that will keep us busy for the next 12-18 months,” he added.

Underscoring the extent of LANXESS’s transformation, the CEO pointed out that four years ago, the portfolio was dominated by polymers and rubber which accounted for €4.0-4.5bn of sales of between €7.0-7.5bn.

“Now the picture has completely changed. Once HPM is gone, we will be a company of around €7-8bn in sales but a pure-play chemical business. If you blend out urethanes, there will be no more polymers – only niche specialty chemicals businesses and intermediates,” said Zachert.

While urethanes – the last piece of its HPM business (after the rest of HPM combines with DSM Engineering Materials) – is not a core business for LANXESS, there is no rush to sell the asset, he noted.

“We said urethanes could become a divestiture candidate but this is [not likely] for the next one to two years. It’s something I would not consider as the core of our portfolio, but there is no hurry. This is not a problem child – it’s a strong business and therefore there is no hurry for any divestiture,” said Zachert.

MALEIC ANHYDRIDE STILL CORE
LANXESS will keep its maleic anhydride (MA) business – part of the Advanced Industrial Intermediates segment.

“It’s a wonderful business with a strong competitive world-scale plant here in North America, and the competitive position versus Europe and Asia is superb. We love it – it’s a cash generation machine and we like these kinds of solitaires that are doing well,” said Zachert.

“Therefore, there is no reason to put a question mark on this business. It deserves a clear exclamation mark,” he added.

LANXESS has a 75,000 tonne/year MA plant in Baytown, Texas, US, along with a smaller 10,000 tonne/year unit in Krefeld-Uerdingen, Germany, according to the ICIS Supply and Demand Database.

Interview article by Joseph Chang