Lanxess to sell Arlanxeo Half to Aramco

09.08.2018 -

German specialty chemicals producer Lanxess is selling its half of the 50:50 joint venture Arlanxeo to its Middle East partner Saudi Aramco and exiting the synthetic rubber business three years earlier than terms originally foresaw.

The business transfer is expected to be completed by the end of this year, following regulatory approvals and consultations with the workforce.

Arlanxeo, headquartered at Maastricht in the Netherlands, was founded in 2016 as a 50:50 joint venture with the Saudi state-owned oil and petrochemicals group after being carved out of Lanxess earlier. Aramco paid €1.2 billion for the 50% stake. The company with 3,800 employees at 20 production sites in nine countries had sales of € 3.2 billion in 2017.

As the Cologne-based chemical producer has been working to reduce the impact of the mature and slow-growing rubber business on its balance sheet for much of its nearly 15-year corporate history, the deal is regarded as a major achievement for CEO Matthias Zachert, who called it “another milestone on our path of transformation.”

The jv is currently valued at €3 billion. For its stake, Lanxess expects to receive cash proceeds of €1.4 billion after deducting part of the more than €2.5 billion debt burden it has been carrying, along with along with other financial liabilities, since its 2017 acquisition of US specialty chemicals and flame retardants producer Chemtura.

Despite having agreed on a five-year lock-up period until 2021 for the respective shareholdings, Zachert told the news agency Bloomberg that both Lanxess and Aramco felt the time was right for a strategic move. The share transfer arrangement was pieced together during two months of intensive negotiations, he said.

The resource-rich Saudis, the CEO explained, were looking to grow downstream and wanted to invest in technology and new production facilities for rubber – a plan that did not fit with Lanxess’ strategy of winding down its engagement in the field.

Commenting on the full takeover of Arlanxeo, Saudi Aramco’s senior vice president of downstream, Abdulaziz al-Judaimi, said the proposed purchase underscores the Middle East group’s strategy “to further diversify and strengthen our capabilities across the entire petroleum and chemicals value chain.”

The company, which has been planning a repeatedly delayed ipo for some time, is also weighing the purchase of a stake in compatriot SABIC, which has a strong presence in the plastics sector based on the former GE Plastics portfolio.

Arlanxeo is the world’s largest producer of synthetic rubber. The portfolio rests mostly on technical grades inherited from Bayer in the 2004 spin-off, as well as with the elastomers (EPDM) assets acquired from Dutch chemical producer DSM in 2010.

At the launch of the rubber jv, Zachert noted that, until the link-up with the Middle East partner, Lanxess was the only rubber producer in the global market that was not back-integrated. The lack of integration was also the driving force behind Bayer’s decision to hive off the business at the beginning of the new millennium.

After exiting the rubber sector, Zachert said Lanxess will focus on strengthening its position as a leading player in the mid-sized specialty chemicals market. He said the company

plans to use the proceeds from the share sale to strengthen its financial base and reduce net financial debt.

In a TV interview, the Lanxess chief suggested that new acquisitions will not be a priority for the German company in the near term, though he hinted that, farther down the road, the chemical producer will be seen making “big strides forward.”

Since taking over as Lanxess CEO in 2014, the former CFO Zachert has been honing the company’s specialty chemicals profile while reducing overheads reductions and consolidating assets. Its biggest move was the takeover of Chemtura for €2.4 billion including debt.