Morningstar | Lanxess Sells Remaining Interest in Arlanxeo; Raising Fair Value Estimate to EUR 59. See Updated Analyst Note from 13 Aug 2018
After reviewing the proposed divestment of Lanxess’ remaining 50% interest in Arlanxeo, we raise our fair value estimate to EUR 59 from EUR 55 and maintain our no-moat rating for the company. At current levels, the shares look moderately overvalued.Lanxess recently announced that it is selling its remaining interest in its commodity rubber business, Arlanxeo, to its joint venture partner, Saudi Aramco. We think Lanxess’ plan has always been to fully exit the business, but the early timing is somewhat of a surprise. We are positive on the transaction, as evidenced by the uptick in our fair value estimate, but we also like the strategic aspects as Arlanxeo is noncore to the new Lanxess and the proceeds can be used to reduce debt picked up in the Chemtura acquisition and support further acquisitions that complement the core operations.
The transaction is being done on an enterprise valuation of EUR 3 billion (100% basis), a slight increase over the EUR 2.75 billion valuation of the original joint venture deal in 2016. Lanxess expects to receive cash proceeds of EUR 1.4 billion when the deal closes at the end of 2018. On our numbers, this represents roughly 7.5 times 2018 EBITDA. We think this is a good price for a commodity business that is likely to remain challenged for several years due to ongoing new capacity entering the market.
Lanxess is a management holding company, engaged in chemicals enterprise with a portfolio ranging from polymers to industrial, specialty and fine chemicals. Co. has three segments, which comprise 14 business units. Co.'s Performance Polymers segments include five units, Butyl Rubber, Performance Butadiene Rubbers, Keltan Elastomers, High Performance Elastomers, and High Performance Materials. Advanced Intermediates segments include two units, Advanced Industrial Intermediates, and Saltigo. Performance Chemicals segments, include seven units, Material Protection Products, Inorganic Pigments, Functional Chemicals, Leather, Rhein Chemie, Rubber Chemicals, and Liquid Purification Technologies.
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