Lanxess to acquire Chemtura
9/26/2016
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Lanxess announced on Sunday that it has reached an agreement to acquire Chemtura Corporation, for an enterprise value of €2.40 billion ($2.70 billion).
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. "For the past year, our management team and board of directors have been actively working to identify a transformative opportunity to create value for our shareholders and to enhance the scale, strength and diversity of our business, both vertically and geographically," said Craig Rogerson, president, chairman and CEO of Chemtura.
Lanxess and Chemtura have signed an 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 equity value of, $2.12 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, and is expected to close around mid-2017. Lanxess's stock was today trading 5.8% up since the close of Friday while Chemtura's was more than 17% higher. The name Chemtura will be dropped, Lanxess says. "Once the deal is closed, the company will be fully part of the Lanxess brand," Lanxess tells
CW.
The deal, Lanxess’s largest ever acquisition, will build on the company’s additives portfolio. Chemtura is one of the major global producers of flame retardants and lubricant additives. It has 20 sites in 11 countries and approximately 2,500 employees. The company reported sales of around €1.5 billion in the last four quarters, with EBITDA pre exceptionals of about €245 million and an 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, the world’s largest producer of synthetic rubber, has been diversifying its business of late. Last year, the company 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 the purchase of the cleaning and disinfects business of Chemours.
Lanxess and Chemtura has combined 2015 sales of about of €9.5 billion. The number, however, includes Arlanxeo, the equally owned synthetic rubber JV, which last year had sales of €2.9 billion.
The deal builds Lanxess's business in medium-sized markets and increases its presence in North America, says Matthias Zachert, chairman of Lanxess. The acquisition also builds on Lanxess' additives business, he says.
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 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, along with Lanxess’s Rhein Chemie additives business unit (ADD), will form a new performance additives segment within Lanxess. ADD already sells a variety of specialty additives for the plastics, rubber, lubricants and colorants industries, and has about 1,600 employees at 20 locations. The additives business is attractive because it requires low capital intensity, but strong technical expertise and customization, according to Anno Borkowsky, head of Lanxess's Rhein Chemie Additives unit.
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,” Borkowsky says. Lanxess says it expects the industrial lubricant additives market to grow at an annual rate of 3-4% in the medium term.
Chemtura also produces brominated flame retardant additives, elemental bromine and further bromine derivatives. “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. Lanxess also expects medium-term growth rates of 3-4%/year in flame-retardant additives.
Chemtura’s urethane business is a major producer of hot-cast prepolymers and of special, aqueous urethane dispersions and polyester polyols. The business will be integrated into Lanxess’s high-performance materials segment. Chemtura is also a major player in organometallics, used, among others, as catalysts in polymer production and for synthesis of fine chemicals and pharmaceuticals. That business will become part of Lanxess’s advanced industrial intermediates business unit.
Analysts are upbeat about the acquisition. "Zachert wants to make Lanxess a more resilient and higher value and cash generating company. The transformation towards a specialty chemical company makes sense as stocks of such companies deserve a higher valuation multiples," says Martin Roediger, analyst with Kepler Cheuvreux (Frankfurt). He says the companies make a good strategic fit as the addition of Chemtura strengthens Lanxess's additives business and can create substantial synergies. Roediger adds that the price Lanxess is paying is fair. "Lanxess knows that Chemtura is currently at an elevated earnings but especially in bromine based flame retardants. This is the reason why both parties agreed on the moderate takeover premium of 19%. Nevertheless, we calculate a 17% value creation...if the targeted synergies are taken into consideration."