Lanxess, Aramco to form €2.75bn synthetic rubber JV

Cologne, Germany – Lanxess and Saudi Aramco plan to establish a joint venture for synthetic rubber detailed in an agreement signed on 22 Sept.

Lanxess and Saudi Aramco subsidiary, Aramco Overseas Company, will each hold a 50 percent interest in the joint venture, with 2014 sales of around  €3 billion, explained a Lanxess release.

Saudi Aramco, it said, is to pay about €1.2 billion in cash for its 50-percent share after deducting debt and other financial liabilities. The total joint venture is valued at €2.75 billion.

The transaction still requires the approval of the relevant antitrust authorities and is expected to be completed in the first half of 2016.

Lanxess will contribute its synthetic rubber business to the JV, which will include its Tire & Specialty Rubbers (TSR) and the High Performance Elastomers (HPE) business units. Together the businesses will have 20 production facilities in nine countries and some 3,700 employees and additional support staff.

Saudi Aramco will provide the joint venture with “competitive and reliable access to strategic raw materials over the medium term,” added the Lanxess statement.

The JV will be managed by a holding company headquartered in The Netherlands. The CEO will be appointed by Lanxess and the CFO will be appointed by Aramco Overseas Co. Each company will have equal representation on the JV’s board of directors. Lanxess will consolidate the JV’s financials.

“This alliance will enable us to give the rubber business a very strong competitive position and the best possible future perspectives”, said Lanxess CEO Matthias Zachert.

“Together in the future we can produce synthetic rubber in an integrated value chain from the oil field to the end product, thus establishing one of the best positioned suppliers in the world market. In this way, we will be able to offer our customers even greater reliability than before,” he added

For his part, Abdulrahman Al-Wuhaib, senior vice president downstream, Saudi Aramco said that he expected the deal to create new revenue stream for Saudi Aramco as well as support economic growth and diversification opportunities in Saudi Arabia and the Middle East region in high-volume sectors, such as tire and auto-parts manufacturing.

The JV marks the completion of Lanxess’ third stage of its three-phase realignment programme started in November 2014 in a bid to make its rubber business more “competitive”.

“We have established a completely new strategic starting point for our company in just over a year”, said Zachert. “Not only have we streamlined our administrative functions and already made many of our production structures and processes more efficient but with this joint venture in the rubber business we are delivering on the most important phase of our realignment – with the best partner possible and in a very short period of time.”

Lanxess said it planned to use around €400 million of the proceeds from the transaction to invest in the growth of its advanced intermediates and performance chemicals. Another roughly €400 million is earmarked for a further reduction of its financial debt position and around €200 million are planned to be used for a share buyback programme.

The synthetic rubber materials manufactured by Lanxess are mainly used in the production of tires and technical applications such as hoses, belts and seals. The main customers include the automotive and tire industries but the products are also used in the construction industry and by oil and gas companies.