Lanxess, the world’s largest synthetic rubber producer, has struck a deal to sell 50% of its rubber business to the Saudi oil giant Saudi Aramco for $1.3 billion.
Forming the joint venture will mark the third and final stage in a restructuring program launched by Lanxess CEO Matthias Zachert, who was hired in April 2014 to right the struggling firm. Earlier stages included the elimination of about 1,000 jobs and cost-cutting at production facilities.
The rubber business reported sales last year of about $3.4 billion. Its 20 plants and 3,700 employees make products used in applications including tires, hoses, belts, and seals. Lanxess has sought to reduce its exposure to the cyclical business since global rubber prices plummeted in 2013.
In Saudi Aramco, Lanxess says it has found a partner that offers “competitive and reliable access” to key petrochemicals used to produce rubber. “This will create one of the world’s best-positioned synthetic rubber companies,” Zachert says. “The resulting financial headroom will allow us to return to growth considerably sooner than expected.”
Lanxess plans to invest about $450 million of the sale proceeds into its advanced intermediates and performance chemicals businesses. Another $450 million will go to pay down debt. About $220 million will be used to buy back shares.
Stock analysts at the German investment bank Berenberg welcome Lanxess’s plan to invest some of the money in the advanced intermediates business. They say the deal is a positive one, particularly given that “underlying market trends in rubber remain challenging.”
For state-owned Saudi Aramco, buying into the rubber business advances a Saudi Arabian goal to diversify beyond oil and gas into downstream sectors such as tire and auto-parts manufacturing, says Abdulrahman Al-Wuhaib, the firm’s senior vice president for downstream products. Another big Saudi Aramco venture is the Sadara petrochemical complex being built with Dow.
The rubber deal mirrors a strategy by Saudi Basic Industries Corp., Saudi Arabia’s largest petrochemical maker, to move into value-added chemicals. SABIC and ExxonMobil are building a $3 billion synthetic rubber plant in Saudi Arabia that is scheduled to open by the end of the year.