Grace will acquire Albemarle’s fine chemistry business

Seeking to significantly step up its modest presence in the pharmaceutical services industry, W.R. Grace has signed an agreement to acquire Albemarle’s fine chemistry business for $570 million. The deal, scheduled for completion in the second quarter, colors Grace’s ongoing takeover battle with the investment firm 40 North Management.

Albemarle’s fine chemistry business is projected to have sales this year of $160 million, according to a Grace presentation about the deal. About two-thirds of Albemarle’s sales are of custom synthesized intermediates and active pharmaceutical ingredients (APIs) for patented drugs. The balance are of generic APIs and custom agricultural-chemical molecules.

The business operates two plants—one in South Haven, Michigan, that produces APIs and one in Tyrone, Pennsylvania, making registered drug starting materials and other intermediates. The website for the business emphasizes its US facilities, noting that they can help drug industry customers reduce supply chain risks compared to outsourcing to overseas firms.

Albemarle says it will use the proceeds from the sale to focus on its core operations in lithium, bromine, and refining catalysts. The firm first indicated its desire to sell the fine chemistry business in 2015.

The operation will become part of Grace’s pharma business, a $100 million-per-year unit that the company calls fast growing and profitable, but that is a small part of its overall annual sales of more than $1.7 billion. The pharma business operates a plant in Albany, Oregon, that produces drug intermediates and APIs, with a focus on fluorinated and peptide building blocks. It also sells silica-based chromatography resins and silica-based excipients and drug delivery systems.

In a report to clients, Kevin McCarthy, a stock analyst at Vertical Research Partners who follows both Grace and Albemarle, admits to being surprised by the deal, given Grace’s modest participation in the pharmaceutical service sector. But he notes that Grace already demonstrates many of the competencies needed to operate a custom synthesis business and will have an opportunity to make more acquisitions in what is a fragmented industry.

“Consequently, we are willing to give the benefit of the doubt regarding strategic fit,” McCarthy writes.

In announcing the purchase, Grace said it will continue an ongoing review of its strategic alternatives, an acknowledgment that McCarthy considers important. Grace launched the review in November in response to an unsolicited takeover offer from 40 North. Grace rejected that offer, of $60 per share, but in January it said it would consider an increased offer from 40 North of $65 per share.