By Ed Frankl
Lanxess AG shares jumped on Tuesday after it said that it would join with private-equity firm Advent International Corp. to buy Royal DSM NV’s engineering-materials business for around 3.7 billion euros ($3.99 billion), creating a new venture for high-performance plastics, and said that it would start a new share buyback.
At 0745 GMT, Lanxess shares were up 11.5% to EUR43.51.
The German specialty-chemical company said it would also transfer its own high-performance polymers business into the joint venture, and receive EUR1.1 billion initially and a stake of up to 40% in the new business.
Advent will hold at least 60% in the joint venture, Lanxess said.
The Cologne-based company said it would use the proceeds to reduce debt and launch a EUR300 million share-buyback program.
Lanxess’s high-performance polymers business, used primarily for the automotive industry, represents annual sales of around EUR1.5 billion, with pre-exceptional operating profit of around EUR210 million, the company said.
The DSM engineering-materials business, which would become part of the joint venture, also represents yearly sales of around EUR1.5 billion and an operating-profit margin of around 20%, Lanxess said.
The unit is a global supplier in high-performance specialty materials for electronics, electrical and consumer-goods industries, Lanxess added.
The news comes after the Netherlands-based DSM said earlier Tuesday that it would merge with Swiss fragrance company Firmenich SA to create a company with a EUR25.3 billion market cap.
DSM shares were up 7.7% in early trading Tuesday.
Lanxess added that it can divest its stake in the joint venture to Advent at the same valuation after three years.
The two companies expect substantial synergies resulting from the combination of the two businesses, Lanxess said.
The deal, which materially reduced debt for Lanxess, represents a significant positive, Jefferies analysts said in a research note.
Lanxess will also become significantly less dependent on economic fluctuations, its Chief Executive Matthias Zachert said.
“The portfolios, value chains and global positioning of the two businesses complement each other perfectly. With its innovative products, the joint venture will be able to play a key role in shaping future developments–for example in the field of electromobility,” he said.
The deal is expected to close in the first half of 2023, subject to approval by authorities, Lanxess said.
Write to Ed Frankl at email@example.com