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Cytec to Buy UCB Surface Specialties

UCB will focus on pharmaceuticals; Cytec will nearly double in size

by Marc S. Reisch
October 11, 2004 | A version of this story appeared in Volume 82, Issue 41

Credit: Marc Reisch
Credit: Marc Reisch

Cytec Industries has signed a definitive agreement to buy UCB's Surface Specialties business for $1.8 billion. The deal will swell Cytec's annual sales to about $2.7 billion and focus UCB entirely on pharmaceuticals. Pending government approvals, the transaction is expected to close at the end of December.

During a conference call with investors, Cytec CEO David Lilley said the acquisition "will add a second jewel to our crown and better balance our portfolio." The first jewel is the firm's specialty materials business, which makes carbon fiber composites for military and commercial aerospace use.

Lilley added that Cytec had been looking at UCB's coatings business for about seven years. However, the two firms made contact through an intermediary for the first time in January. By spring, Lilley said, Cytec had entered into an "exclusive arrangement" with UCB.

Shares of Cytec closed down $3.34 to $45.61 on the day the two firms announced their agreement. However, analyst Michael Judd of Greenwich Consultants said he was upgrading his investment opinion of Cytec because he expects Surface Specialties will "slightly increase" Cytec's profit margins next year.

On a separate conference call, Georges Jacobs, UCB executive committee chairman, said the sale fulfills his firm's strategy of divesting all nonpharmaceuticals activity. The company recently completed the sale of its films business to a financial consortium for $394 million. UCB plans to use proceeds from the sales to pay down debt from the $2.7 billion acquisition earlier this year of British biopharmaceuticals firm Celltech. Jacobs will retire at the beginning of 2005 and the head of pharmaceuticals, Roch Doliveux, will replace him.

The Surface Specialties business will add $1.2 billion in annual sales and 2,900 people to Cytec, which now has $1.5 billion in sales of specialty chemicals and materials and 4,500 employees. The acquisition gives Cytec facilities in Asian countries such as Malaysia, Thailand, South Korea, and Singapore, where it previously only had one in Japan. It also gives the firm new positions in fast-growing powder and radiation-curable coatings.

To head off potential regulatory concerns and also to reduce debt, Cytec said it would keep its own amino cross-linker business but sell UCB's cross-linker business, which has sales of $140 million. When all the dust settles, coatings-related business will increase from 24% of Cytec sales to 55%.

The Surface Specialties business includes the resins, adhesives, and additives businesses that UCB bought from Solutia for $500 million in early 2003. That business, in turn, was largely the former Hoechst Vianova Resins business, which Solutia acquired in 1999 for $640 million.

Surface Specialties will become a separate business segment within Cytec with headquarters in Brussels, Lilley said. Ben Van Assche, currently director general of Surface Specialties, will be named president of the segment and will be elected an officer of Cytec.



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