Germany-based specialty chemicals producer LANXESS seeks acquisition targets in U.S.
The U.S. presence of specialty chemical company LANXESS AG includes 18 productions sites and five other locations. Its LANXESS Corporation subsidiary has headquarters in Pittsburgh, Pennsylvania.
Germany-based LANXESS AG has EUR $3 billion (about $3.5 billion) it can use to expand in the U.S. once it finds acquisition targets aligned with a strategy focused on mid-sized markets in the areas of additives, advanced intermediates, consumer protection products, and engineering materials, as well as helping cut emissions.
“Close to a third of our sales are generated in the Americas region, with close to 3,000 employees and 25 production sites in six countries,” said Antonis Papadourakis, CEO of LANXESS Corp., during a Reuters Events conference in July 2020.
“In 2015, this number was probably half. How did we get here? We did it primarily by acquisition,” he added.
LANXESS bought the clean and disinfect business of Chemours (a 2015 spinoff of DuPont) in 2016 for $230 million.
Also in 2016 Lanxess announced the purchase of Philadelphia-based Chemtura Corp. for about $2.5 billion. Chemtura's products included flame-retardant and lubricant additives as well as urethanes.
In 2018 Lanxess bought the phosphorus chemicals business of Belgian chemicals group Solvay, with EUR 65 million in annual sales. It included a South Carolina production site. Output included intermediate products for agrochemicals and flame-retardants.
“That increased significantly our footprint in the U.S. and we will continue to grow here both organically and via acquisition,” he said.
“Our balance sheet is a very strong one, about EUR 3 billion access to cash, and we are actively looking at targets that are a strategic fit to us in the United States,” Papadourakis added.
LANXESS resulted from a spinoff of Bayer in 2005.
Why the U.S.?
Thanks to U.S. shale production, “natural gas can provide us with ethane which is a key feedstock (…) while the European and the Asian industry (…) rely on oil, rely on naphtha, which comes from oil,” he said.
As long as the ratio of crude prices divided by natural gas prices is above 7 to 1, the U.S. offers a cost advantage, he said.
“This ratio is above 7 for more than a decade now and I think the fundamentals are such that in the long term it will continue to be so,” he said.
However, challenges may also loom.
“Some of these challenges are short term like for example the (crude oil) price war between Saudi Arabia and Russia,” he said. Covid-19 now has similarly reduced oil demand, he noted.
Longer-term challenges would include increasing “sustainability efforts, the move towards new resources” as well as trade wars.
“But again the trade wars are something that can come and go based on administrations and policies ,” he said.
“The value chains are now global and I want to see free and fair trade and not barriers,” he said.
With such barriers “at the end the consumer will pay more,” he added
Raising cash, re-organizing
In August 2019 Bayer and LANXESS each sold their stakes in Currenta GmbH, a chemical industry provider of services, including waste management and materials supply. LANXESS completed the transaction in April 2020.
With the Currenta sale, LANXESS realized an equity value of EUR 780 million and a profit of EUR 150 million, LANXESS said in May. It sold “to focus more sharply on consumer protection products.”
LANXESS AG said as part of its first quarter earnings release in May that it also raised cash through the sale of its chrome leather business in 2019.
The disposal of all operations related to the leather business unit “is expected to be fully completed by the end of this year” (2020), it said.
LANXESS this year re-organized its material protection and liquid purification businesses into a new Consumer Protection segment. It placed its inorganic pigments business in the Advance Intermediates segment.
This resulted in four business segments. The other two are Specialty Additives, which includes lubricants and polymer additives, and Engineering Materials, which includes urethanes, polyamides and PBT.
Lanxess then said in mid-July it sold, for an undisclosed price, a reverse-osmosis business to focus water treatment efforts on ion-exchange resin. It said it wanted to build a plant at a still undetermined location with up to EUR 120 million in coming years.
On February 3, LANXESS said it completed the acquisition of the Brazilian biocide manufacturer Itibanyl Produtos Especiais Ltda. (IPEL) , paying a “lower eight-figure sum in euros” similar to its annual sales. Products made by this unit integrated into the Consumer Protection segment are used to kill bacteria and fungus.
North America revenue rising
Group sales in the first quarter of 2020 reached EUR 1.7 billion, a 2% on-year decline. Revenue from the Americas helped to in part offset contractions in Europe.
EMEA (Europe, Middle East, Africa) excluding Germany brought EUR 536 million. However, it was a 6% decline from 2019. Germany brought EUR 317, a 7% on-year decline.
North America accounted for EUR 409 million, a 5% on-year increase. Latin America, with EUR 83 million, was up nearly 4%. Other revenue came from Asia-Pacific, about flat from 2019.
As of March 31, LANXESS total assets were EUR 9.7 billion.
“We are very keen on environmental issues and sustainability,” Papadourakis said.
Recent work by the company to cut emissions included nitrous oxide reductions in Germany and a biomass co-generation plant in Brazil.
The company has steadily reduced emissions from 6,500 CO2 equivalent (CO2e) in 2004 to 3,200 CO2e in 2018.
The current plan is cut that to 2,400 CO2e by 2025, and then to 1600 CO2e in 2030. By 2040 LANXESS wants to be CO2 neutral.
When “looking to acquire other companies or pieces of companies or businesses we also look at our CO2 footprint,” Papadourakis said.
“It will be one of the criteria we use for these acquisitions but clearly not the only one,” he added.
(EUR 1 = $1.18)
By Renzo Pipoli