Flush with cash from the sale of a major chunk of its rubber business to Saudi Aramco, German chemical producer Lanxess has signed a “definitive agreement” to acquire US specialty chemicals group Chemtura for $2.5 billion. Under the terms of the all-cash transaction planned to close around mid-2017, the US company’s shareholders will receive $33.50 per share for each outstanding share of common stock held – a 18.9% premium to the closing share price of $28.18 on September 23.

In sharp contrast to the fanfare accompanying former parent Bayer’s recently clinched power deal to acquire its own US rival, Monsanto, for $66 billion, the proposed Chemtura takeover – also initiated by the German partner, as Lanxess CEO Matthias Zachert revealed in a conference call with journalists – was  kept closely under wraps to the last.

Zachert said talks with the US additives specialist, which he described as “tough, intensive and long,” began at the end of 2015 and culminated in a “fair deal for both sides.” In reaction to the news, Chemtura’s share price rose nearly 16.9% in Monday’s US pre-market session after the news was announced in the late evening US time. At the same time, ratings agency Moody’s confirmed Lanxess’ investment grade rating.

If approved by Chemtura shareholders and regulatory authorities, the acquisition will be the largest in the history of the now Cologne-based commodity chemicals producer carved out of Bayer in 2004 and floated on the Frankfurt stock exchange the following year. It would greatly expand the company’s footprint in North America as well as enhancing and enlarging its existing additives portfolio. Some 45% of Chemtura’s revenue is generated in North America. In addition to additives, the portfolio includes urethanes and organometallics.

“With this acquisition, we are forming a champion in the field of additives and are strengthening our already profitable portfolio,” said Zachert. “Through the acquisition, we are further implementing our strategy to become a more resilient and profitable chemical company.” The integration of the Chemtura businesses will significantly build on Lanxess’ competitive position in medium-sized markets, he added.

Lanxess will pay an EV/EBITDA multiple of approximately 7x including synergies to secure the deal, which it said meets its target of 7-9x for acquisitions including synergies. The takeover is expected to be accretive to earnings per share in the first business year, with annual synergies of around €100 million to be generated by 2020. Financing will be raised mainly through senior and hybrid bonds, but the company will also tap existing liquidity.

Chemtura, which emerged from the 2005 merger of US companies Great Lakes and Crompton, reported sales of $1.7 billion in 2015.  The company headquartered in Philadelphia, Pennsylvania, has 20 sites in 11 countries and some 2,500 employees worldwide.  In comparative markets, analysts said the company recently had lagged worldwide competitors, including US rival Albemarle, in terms of earnings.

“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 CEO Craig A. Rogerson. The sale to Lanxess delivers on that promise, he commented, as it makes Chemtura “part of a much larger, stronger global enterprise with the resources to fully support a more diverse suite of specialty chemicals products and services.”

Together with Rhein Chemie Additives, Chemtura’s two additive segments, which account for the lion’s share of the US company’s portfolio, will form a new Performance Additives segment and increase Lanxess’ vertical integration. With around 1,600 employees at more than 20 worldwide locations, Rhein Chemie currently produces a wide range of specialty additives and service products for the plastics, rubber, lubricants and colorants sectors.

The most important segment of Chemtura’s additives business produces lubricant additives and synthetic lubricants for use in industrial applications such as power generation and aviation. The US company is also a major supplier of bromine and brominated products such as flame retardants and, according to Lanxess, is well positioned due to its backward integration.

Anno Borkowsky, head of Rhein Chemie Additives, said Lanxess expects the industrial lubricant additives market to grow at an annual rate 3-4% in the medium term, primarily driven by steadily increasing demands on performance and environmental sustainability. He noted that the German company, with its back-integrated additives production chain, already has a competitive position in the phosphorous-based flame retardants. For this sector, Lanxess also forecasts medium-term growth rates of 3-4%. 

Two other Chemtura business segments will be entirely complementary to the Lanxess portfolio. The urethanes unit is a major producer of precursors for specialty polyurethanes, including hot-cast prepolymers and special aqueous urethane dispersions and polyester polyols. This business will be integrated into Lanxess’ High Performance Materials segment, which also includes its business with engineering plastics PA and PBT.

The US player also ranks among the world’s major producers of organometallics, used, among other things as catalysts in polymer production and for synthesis of fine chemicals and pharmaceuticals. This business will become part of Lanxess’ Advanced Industrial Intermediates business unit.