Lanxess to acquire Chemtura for $2.69B

September 26, 2016 |

bd-ts-092716-lanxess-smIn Germany, Lanxess will acquire the US-based speciality chemical maker Chemtura, one of the major global providers of high-quality flame retardant and lubricant additives, for $2.69B, a 18.9% premium to the stock’s current share price. The transaction will be financed by LANXESS mainly through senior and hybrid bonds, as well as from existing liquidity. The transaction is expected to close around mid-2017.

More about Chemtura

Headquartered in Philadelphia, Pennsylvania, Chemtura has 20 sites in 11 countries and approximately 2,500 employees worldwide. The company reported sales of around EUR 1.5 billion in the last four quarters with EBITDA pre exceptionals of approximately EUR 245 million (EBITDA margin of approx. 16%). Approximately 45% of Chemtura’s revenue is generated in North America. In addition to additives, Chemtura’s portfolio includes urethanes and organometallics.

Who are Lanxess, again?

Lanxess is a leading specialty chemicals company with sales of €7.9 billion in 2015 and 55 production sites worldwide. The core business of Lanxess is the development, manufacturing and marketing of chemical intermediates, specialty chemicals and plastics. Through ARLANXEO, the joint venture with Saudi Aramco, Lanxess is also a leading supplier of synthetic rubber.

The M&A spree continues

Chemtura has been in the acquisition sights for some time — former Piper Jaffray analyst Mike Ritzenthaler tipped a focus on Chemtura last year at the time the Dow-DuPont merger was announced. Ritzenthaler also tipped a strong market interest in WR Grace.

But this deal was significantly less expansive than some other marquee transactions in recent months. 10X EBITDA and, after what Lanxess termed “synergies,” around 7X.

Doubling up in additives

Chemtura’s two additive segments form the main pillars of the company’s business. Both will, together with Lanxess’ Rhein Chemie Additives business unit, 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 employees worldwide at more than 20 locations.

According to Lanxess, “The first pillar of Chemtura’s additives business includes lubricant additives and synthetic lubricants for industrial applications, such as in power generation and aviation. The second pillar is mainly comprised of the brominated flame retardant additives, elemental bromine and further bromine derivatives businesses. Brominated flame retardant additives are used because of their high effectiveness, especially in the construction industry for insulation and in the electronics industry.”

New fields for LANXESS in Urethane and Organometallics

Chemtura’s urethane business is a major provider for hot-cast prepolymers and for special, aqueous urethane dispersions and polyester polyols. These are components for special polyurethanes, which are used mainly in the construction, mining, oil/gas, sports and electronics industries. For example, rollers for conveyor belts and roller skates are manufactured from these polyurethanes. The urethanes business will be integrated into Lanxess’ High Performance Materials segment, in which the high-tech plastics business is anchored.

Chemtura is counted among the major companies worldwide in organometallics. Organometallics are chemical compounds that are used, among other things, as catalysts in polymer production and for synthesis of fine chemicals and pharmaceuticals. This business will in the future be part of Lanxess’ Advanced Industrial Intermediates business unit.

Partnered up with BioAmber, Genomatica and Gevo

In February 2012, Lanxess invested $10M in BioAmber and joiend the company’s board. The companies had previously announced a joint development effort for succinic acid-based plasticizers that are both renewable and phthalate-free. BioAmber launched its first commercial succinic acid in Sarnia, Canada, located on a site within Lanxess’ Bio-industrial Park.

In the summer of 2013 Lanxess ran a production campaign of bio-based PBT in Lanxess’ world-scale production plant using 20 metric tons of bio-based BDO made with Genomatica’s commercially-proven process. The properties and the quality of the resulting bio-based PBT were fully equivalent to conventional petro-based PBT with regard to all tested parameters. The PBT plant, with a capacity of 80,000 tons per year, is located in Hamm-Uentrop, Germany and operated as a joint venture in which Lanxess has a share of 50 percent.

In Gevo’s 2011 IPO, the company highlighted an exclusive, 10-year deal to supply Lanxess with isobutylene and butenes for use and sale in the field of chemicals, produce butadiene and isobutylene for use in the production of polybutadiene and butyl rubber, and produce isobutylene for use in the production of polyisobutylene.  But we have heard almost nothing about the offtake arranagement in recent years as Gevo’s attention focused in on marine and aviation fuels.

Green products

In 2013, we reported that Lanxess added five new grades to its portfolio of “green” ethylene-propylene-diene elastomers, Keltan Eco. These are “drop-in” variants of conventional EPDM rubber grades from Lanxess that are already in widespread use. If all goes according to schedule, they will be commercially available in the second half of 2013.

Biodiesel stabilizers

In 2014, we reported that Lanxess launched a liquid stabilizer for biodiesel, called Baynox Extra. The additive prolongs the shelf life of biodiesel, even when it contains polyunsaturated fatty acids, at temperatures as low as minus 10 degrees Celsius, meaning that the antioxidant tank does not need to be heated. Baynox Ultra is typically added in a concentration of 200 to 500 ppm to the biodiesel. Since the stabilizer does not crystallize, it can be used reliably at temperatures as low as 20 degrees Fahrenheit.

In January 2015, we noted that Lanxess added two new highly concentrated antioxidants to Baynox Ultra, that effectively prolongs the shelf life of biodiesel, especially for soybean and sunflower methyl esters. It contains a balanced blend of highly active antioxidants and a chelating agent dissolved in a “green” solvent.

Sustainability Initiatives

In July 2011, we reports that Lanxess signed the United Nations Global Compact, committing to a 10 percent reduction in specific CO2 emissions and specific energy consumption for each business segment by 2015. Emissions of volatile organic compounds (VOCs) are also to be cut by 30 percent worldwide by 2015.

By 2014, the Together for Sustainability chemical industry initiative was underway, aimed at improving sustainability practices. The initiative jointly conducts supplier assessments and audit programs, avoiding the need for individual members to conduct their own scoring programs. Members are DuPont, Covestro, Sanofi, Merck, Wacker, Syngenta, Eastman, IFF, Arkema, Clariant, AkzoNobel, BASF, Bayer, Evonik Industries, Henkel, Lanxess, Brenntag and Solvay.

Reaction from the Stakeholders

“With this acquisition, we are forming a champion in the field of additives and are strengthening our already profitable portfolio,” said Matthias Zachert, Chairman of the Board of Management of Lanxess. “Through the acquisition, we are further implementing our strategy to become a more resilient and profitable chemical company. 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.”

“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 A. Rogerson, President, Chief Executive Officer and Chairman of the Board of Chemtura.

The Bottom Line

Is this the end of the M&A spree? Hardly.

We’ll see more at this level as companies continue to seek synergies and economies of scale in key market sectors and to find new geographies and new growth sectors, as we see here with Lanxess getting new units in urethanes and a bigger US footprint.

There’s the afore-mentioned WR Grace, and we’d be surprised, when this cycle is complete, if the afore-mentioned Together for Sustainability group doesn’t reduce membership by 1-2 companies as a result of marger activity.

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