Sector News

Nippon Shokubai, Sanyo Chemical enter merger agreement to form Synfomix

December 2, 2019
Chemical Value Chain

Nippon Shokubai and Sanyo Chemical have entered into an agreement to merge their respective businesses via a share transfer to form an integrated holding company named Synfomix Co. Ltd. (Kyoto, Japan), as first announced in May this year. The companies plan to establish Synfomix on 1 October 2020. 1.225 shares of Synfomix will be allotted and delivered for each share of Nippon Shokubai common stock, while one share of the new company will be allotted and delivered for each share of Sanyo Chemical common stock.

Synfomix intends to become a chemical manufacturer with both significant global presence as well as multiple businesses with strength by combining Nippon Shokubai’s value chain of competitive materials and Sanyo Chemical’s solution business that addresses customers’ challenges, say the companies. The “materials” division will work on thorough cost reductions by utilizing the value chain of fundamental products such as ethylene oxide (EO) and acrylic acid (AA). The superabsorbent polymers (SAP) business will aim at quality improvement and cost reduction by combining the companies’ production technology capabilities and R&D abilities, they add.

The materials sector will manufacture products including EO, ethylene glycols (EG), ethanolamines, AA, acrylates, acrylic hydroxy monomers, SAP, maleic anhydride, and maleic anhydride derivatives

The “solutions” division will be divided into industrial, personal, and energy and electronics business segments. The industrial business will focus on permanent antistatic agents, coating resins, polymers for concrete admixture, polymer flocculants, catalysts for environmental preservation, raw materials for automobile foam, lubricating oil additives, and dispersant/defoamer. The personal segment will cater for detergents for household use, substrates/raw materials for cosmetics, and hemostatic agents/reagents for medical use. The energy and electronics segment will provide new-type lithium-ion (Li-ion) battery, electrolytes for capacitors, electrolytes for batteries, resins for optical materials, spherical fine particles, resist agent, and toner resins.

The business environment surrounding the chemical industry has become increasingly difficult in recent years, according to Shokubai. Demand for chemicals in Japan is expected to decline due to a changing social structure including a decline in and aging of the population, which is intensifying competition between chemical producers, it says. In emerging countries, demand for chemicals is increasing due to rising populations and income levels, but the expansion of chemical manufacturers in emerging countries and increasing scale disparity with large European and US chemical players are reducing Japanese chemical firms’ competitiveness, it says.

SAP, one of the core businesses of Shokubai and Sanyo, can expect continuing and stable demand growth given the growing world population, they say. The outlook is worsening, however, due to a downturn in profitability with changes in the business environment such as oversupply in emerging countries, where new players are entering the market, says Shokubai. Shokubai is a major producer of acrylic acid, a key raw material for SAP. It also makes EO and functional chemicals such as electronic and information materials. Sanyo also produces polypropylene glycol, used to make polyurethane foams, as well as functional chemicals such as lubricant additives and permanent antistatic agents.

Shokubai says it possesses a solid value chain of in-house manufacturing processes for basic chemicals and functional chemicals, including catalysts and polymer and organic synthesis technology, but it faces a challenge to create new businesses that meet users’ needs. Sanyo says it has approximately 3,000 products in its performance chemicals portfolio, but it is dependent on procurement of raw materials from external suppliers, including Shokubai. The companies say they will seek to maximize integration and diversification opportunities following the merger, to reduce costs and boost growth.

Integration efforts will focus on AA and SAP in particular. Shokubai operates integrated AA/SAP complexes in Japan, the US, Belgium, and Indonesia, as well as a stand-alone SAP plant in China. Sanyo has SAP units in Japan, China, and Malaysia.

Nippon Shokubai is already the world’s largest producer of SAP, with 17% of global capacity; the merged company will hold 27% of the global total. Other major producers are BASF, at 15%; Evonik, at 12%; LG Chem, at 11%; Sumitomo Seika, at 10%; and Formosa, at 5%. Sanyo, through its subsidiary SDP Global, has 420,000 metric tons/year of SAP capacity, with the company depending on Nippon Shokubai and other producers for feedstock. Nippon Shokubai has 740,000 metric tons/year of AA capacity as well as 710,000 metric tons/year of SAP capacity. IHS Markit expects global SAP demand to grow at an average annual rate of 4.2% during 2019-24, down from 6.0% during 2014-19.

Shokubai and Sanyo have combined annual sales of about ¥511.2 billion ($4.7 billion) and operating profit of ¥39 billion. The merged entity will be the 11th-biggest chemical company in Japan, ranked by sales. Shokubai is currently the 14th largest firm and Sanyo ranks 20th based on their current sales, according to company reports.

Shokubai registered a net profit of ¥25 billion for the fiscal year ended 31 March 2019, up 3% over the prior year. Net sales totaled ¥349.6 billion, 9.8% higher than the prior-year figure. Operating profit decreased 2.3% to ¥26 billion. Sanyo reported flat full-year net sales of ¥161.6 billion. Its net income plunged 42.3% to ¥5.3 billion compared to the previous year, mainly due to the posting of a ¥8.8-billion impairment loss on fixed assets in the SDP Global Malaysia business as an extraordinary loss.

Nippon and Sanyo employ 4,541 and 2,072 people respectively. Shokubai currently has a 5.0% stake in Sanyo. The biggest shareholders in Sanyo are Toyota Tsusho with 19.4% and Toray Industries with 17.3%. Sumitomo Chemical holds a 6.84% stake in Nippon Shokubai.

By Kartik Kohli

Source: Chemical Week

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