This week, Germany-based Lanxess AG agreed to buy its US-based competitor Chemtura Corp at a value of approximatley $2.1 billion, in cash. This will more than double the size of the Cologne, Germany company’s additives business and, more importantly, accelerating a more significant shift towards specialty chemicals.
With the completion of this sale, shareholders of the lubricant additive maker and flame retardants will receive $33.50 per share. Overall, the offer was 19 percent higher than Philadelphia-based Chemtura’s $28.18 close, on September 23. In addition Lanxess shares rose upwards of 12 percent, which is the company’s biggest jump since April of 2009. Shares of Chemutura shot up 17 percent—to reach $32.94—in pre-market trading.
Lanxess management board chairman Matthias Zachert has been looking to focus more on expanding the company’s chemical units since pushing its large rubber operations towards a joint venture with the Saudi Arabian Oil Co, also in April. This was a partnership that paired perfectly with the expansion goals of Chemtura Chief Executive Officer Craig Rogerson who was in the process of evaluating the potential of a sale since as early as last year.
Accordingly, Bankhaus Metzler analyst Lars Hettche recommends buying into the stock. He says, “Looking at what they are buying, the price and how they are financing it, I would say two thumbs up. The question is whether they will get it for that price.”
Indeed, the final price is always the concern. After all, Chemtura could have some great competition, even though there are not any companies on the market, right now, with the potential synergy of Lanxess and Chemtura. Indeed, Zachert responds “We see the current price offered as a vary fair value.”
With that, DZ Bank analyst Peter Spengler advised, in a note to clients, “The Chemtura acquisition is a surprise since it is the largest acquisition of Lanxess so far. It fits very well and provides significant synergies and at a reasonable price.”
Overall, then, the purchase will add 1.5 billion EU in sales, which roughly 40 percent higher than Lanxess’ current 850 million Eu in additives unit revenue. But the deal witll also split Lanxess into two new lines of revenue. These are 1) urethane polymers that are used to coat mining equipment and sporting goods and 2) organometallics, which is a type of chemical compound used often as a catalyst.