Saudi Aramco has acquired a 50% stake in Lanxess’s synthetic rubber business through its foreign investment arm Aramco Overseas.
Saudi Arabia's oil giant paid about $1.35bn in cash for its share after deducting debt and other financial liabilities, according to a statement released by Lanxess.
Under the deal, the two companies will set up a joint venture for synthetic rubber which is valued at $3.08bn. The transaction is expected to be completed in the first half of 2016.
Lanxess said it will contribute its synthetic rubber business to the new joint venture. This will include the Tire & Specialty Rubbers (TSR) and the High Performance Elastomers (HPE) business units, their 20 production facilities in nine countries and some 3,700 employees and additional support staff.
The high-performance rubbers manufactured by Lanxess are mainly used in the production of tires and technical applications such as hoses, belts and seals.
The main customers for its business include the automotive and tire industries but the products are also used in the construction industry and by oil and gas companies.
The German specialty chemicals company is the world’s largest producer of synthetic rubber, with enterprise value of over $6.3bn.
“Saudi Aramco will provide the joint venture with competitive and reliable access to strategic raw materials over the medium term,” Lanxess said in a statement.
The new joint venture 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 Company. Each company will have equal representation on the JV’s board of directors, with Lanxess responsible for consolidating 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.”
Abdulrahman Al-Wuhaib, Senior Vice President Downstream, Saudi Aramco said: “Through the joint venture agreement we are investing in a world-class synthetic rubber and elastomer products capability that already supplies many of the world’s largest tire and automotive-parts manufacturing customers.
“In addition to creating a new revenue stream for Saudi Aramco, the agreement will spur economic growth and diversification opportunities for the Kingdom of Saudi Arabia and the Middle East region in high-volume sectors, such as tire and auto-parts manufacturing, that are dependent on higher-margin, value-added chemicals products.”