Rising star Lanxess targets Degussa acquisition

Leverkusen, Germny -- Lanxess’ leadership has underlined the company’s surprise position as the rising star of the global chemicals business by confirming that it preparing to bid for established industry stalwart Degussa GmbH.

Leverkusen-based Lanxess was formed via a 2004 spin off of Bayer’s chemicals and polymers and polymer additive business – including many unprofitable units serving relatively mature markets. Its portfolio encompasses performance rubbers, engineering plastics, chemical intermediates and performance chemicals.

As an independent, Lanxess has turned around many of its businesses and said chairman Axel Heitmann is “now in a position to grow through acquisitions … and play an active part in the consolidation of the global chemical industry.”

According to Heitmann, Degussa would be a good fit for Lanxess and with which it will develop an earnings-oriented growth strategy. He added that Lanxess was in a position to finance this acquisition even without private equity capital.

Lanxess reported 2006 sales of almost Euro7000 million and has around 16,500 employees – compared to Duesseldorf-based Degussa’ respective standing of around Euro11,000 million and 36,000 employees.

Degussa, part of the RAG Group, is focused on the global market for speciality chemicals and related products, technologies and services. It comprises 12 business units divided between three reporting segments; Technology Specialties, Consumer Solutions, and Specialty Materials.

Outlining his plans for a “merger” with Degussa, Heitmann said “the two companies are an ideal fit and have few overlaps. Combining them would create a new, strong global player here in North Rhine-Westphalia.

“Since there are so few overlaps, we would not expect there to be any reduction in employment on the operational side. On the contrary: a strong, global company focusing purely on chemicals would be a growth story, not a restructuring story.”

Heitmann also stressed that Lanxess would continue to grow organically, particularly by focusing on fast growing markets in Asia -- the company brought three new production facilities came on stream in China last year.

“We will be making further significant investments in new projects. For example, we have taken a decisive step forward in our search for a location in Asia to build a production facility for ion exchange resins. We are currently analysing a total of five possible sites in China, India and Singapore,” added Heitmann.

Lanxess is also expanding its production facilities closer to home. This year it will invest nearly Euro20 million in Dormagen, Germany, as part of a plan to increase total capital expenditures to over Euro300 million, from Euro267 million last year.

Heitmann’s comments accompanied Lanxess' first quarter results statement showing a 7% rise in earnings (EBITDA pre exceptionals) to Euro219 million on sales up 3% -- excluding divestment of its Fibers, Paper and Textile Processing Chemicals business units and currency effects -- to Euro1700 million.

The improvement over the first three months of 2007, compared to the same period last year, reflected Lanxess’ “price-before-volume” strategy and an extensive restructuring programmes, which will reduce its cost base by Euro250 million by 2009, said the CEO.

“The further earnings improvement in the first quarter of 2007 provides a good basis for meeting our targets this year. We therefore expect EBITDA pre exceptionals to increase by a medium to high single-digit percentage from the 2006 figure of €675 million,” Heitmann forecast.