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Lanxess agrees to acquire Chemtura for $2.5 billion

September 26, 2016
Energy & Chemical Value Chain

Lanxess announced on Sunday that it has reached an agreement to acquire Chemtura Corporation, for $2.12 billion in cash.

Chemtura said last year that it is looking for a large “buy, sell or merge” transaction to significantly increase the company’s reach and scale.

Lanxess and Chemtura have signed a definitive agreement under which Chemtura shareholders will receive $33.50 per share in cash for each outstanding share of common stock held, which represents an 18.9% premium to the stock’s closing share price of $28.18 on 23 September 2016. The transaction, with an enterprise value of approximately €2.4 billion ($2.7 billion), will be financed by Lanxess mainly through senior and hybrid bonds, as well as from existing liquidity. It is subject to approval by Chemtura shareholders, required regulatory approvals and certain other customary closing conditions and is expected to close around mid-2017.

The deal, Lanxess’s largest ever acquisition, will build on the company’s additives portfolio. Chemtura is one of the major global providers of flame retardants and lubricant additives. It has 20 sites in 11 countries and approximately 2,500 employees worldwide. The company reported sales of around €1.5 billion in the last four quarters with EBITDA pre exceptionals of approximately €245 million and EBITDA margin of approximately 16%. About 45% of Chemtura’s revenue is generated in North America. In addition to additives, Chemtura’s portfolio includes urethanes and organometallics.

Lanxess says the acquisition forms the next milestone on its growth plan following a major realignment. The company, the world’s largest producer of synthetic rubber, last year agreed to divest a large part of its portfolio by selling a 50% stake in its rubbers business to Saudi Aramco for €1.2 billion. In April, Lanxess announced its first acquisition since the realignment, the purchase of the clean and disinfect business of Chemours.

“With [the Chemtura] acquisition, we are forming a champion in the field of additives and are strengthening our already profitable portfolio,” said Matthias Zachert, chairman of Lanxess. “Through the acquisition, we are further implementing our strategy to become a more resilient and profitable chemical company,” he says. Through the acquisition, Lanxess is building on its position in medium-sized markets and increasing its presence in North America.

“The transaction provides premium value to our shareholders and benefits our customers and employees by making Chemtura part of a much larger, stronger global enterprise with the resources to fully support a more diverse suite of specialty chemicals products and services,” said Craig Rogerson, president, CEO and chairman of the board of Chemtura.

For Lanxess, the acquisition will be accretive to earnings per share in the first fiscal year, with annual synergies of approximately €100 million expected by 2020. Lanxess is paying an EV/EBITDA multiple of approximately 7x including synergies for this transaction, meeting its target of 7-9x for acquisitions including synergies, the company says.

Chemtura’s two additive segments form the main pillars of the company’s business. Together with Lanxess’s Rhein Chemie additives business unit (ADD), they will form the new performance additives segment. ADD already offers a wide range of specialty additives and service products for the plastics, rubber, lubricants and colorants production, and employs around 1,600 people worldwide at more than 20 locations. Anno Borkowsky, head of Rhein Chemie Additives, says that additives are an attractive business. “In addition to its relatively low capital intensity, it requires strong expertise and [provides] customized solutions.”

The first pillar of Chemtura’s additives business includes lubricant additives and synthetic lubricants for industrial applications, such as in power generation and aviation. “Chemtura holds a competitive position in industrial lubricant additives. [In addition], Chemtura manufactures the necessary precursors and intermediates. Combined with our own additives portfolio, we will be a major supplier for industrial lubricants and will further strengthen our competitiveness through our integrated value chain,” Borkowsky says. Lanxess says it expects the industrial lubricant additives market to grow at an annual rate of 3-4% in the medium term.

The second pillar is mainly comprised of the brominated flame retardant additives, elemental bromine and further bromine derivatives businesses. Chemtura is a major supplier of bromine and brominated products and is well positioned due to its backward integration. “Flame retardant requirements continue to rise mainly due to the trend for energy-efficient construction…[and] with this acquisition, we will become a major global supplier of high performance flame retardant additives. In the future, we can offer our customers brominated and phosphorous-based products from one source,” Borkowsky says. Rhein Chemie Additives already has a competitive position in the phosphorous-based flame retardants business and features a backward integrated value chain. Lanxess also expects medium-term growth rates of 3-4%/year in flame-retardant additives.

Chemtura’s urethane business is a major provider for hot-cast prepolymers and for special, aqueous urethane dispersions and polyester polyols. The business will be integrated into Lanxess’s high performance materials segment. Chemtura is a major player in organometallics, used, among others, as catalysts in polymer production and for synthesis of fine chemicals and pharmaceuticals. This business will be part of Lanxess’s advanced industrial intermediates business unit.

By Natasha Alperowicz

Source: Chemical Week

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