LONDON: Lanxess AG and Saudi Arabian Oil Co said they will form a 2.75 billion-euro (US$3.1bil) venture to draw on the Middle East company’s access to raw materials and make a struggling synthetic-rubber division more competitive.
Each party will hold 50% in the business, the two companies said in statements yesterday. Saudi Aramco will pay about 1.2 billion euros in cash for the stake, adjusted for debt and payables.
The oil-and-gas major outbid suitors including Ineos Group, according to people familiar with the situation. Berenberg in a July report said that Aramco would be among the “very well-fitting potential partners.”
On its own, Lanxess suffered from higher costs for raw-materials such as benzene and styrene at a time when the market for its synthetic rubber is in a phase of oversupply.
Lanxess chief executive officer Matthias Zachert, who returned to the company to take the helm in April 2014 after a previous stint as finance chief, is transforming the business. As well as seeking a partner for the rubber business to reduce exposure to that industry, he has also cut jobs and streamlined production.
“We have succeeded with not just a breakthrough, but an act of liberation for Lanxess,” Zachert said on a call with journalists. “We are generating so much in the way of financial resources from the 50% stake that we can immediately start with growth again.”
Shares of Lanxess, which dropped out of the benchmark DAX index this week, rose 3.4% to 47.40 euros as of 1:54 pm in Frankfurt. The company has a market value of 4.3 billion euros. Proceeds from the transaction will be used for buybacks, repaying borrowings and investments.
Zachert said the joint venture wasn’t saddled with any debt to enable it to take part in consolidation in the rubber industry and acquire competitors. Both partners had agreed to hold their 50% in the venture for five years, the CEO said. – Bloomberg