Interview with LANXESS CEO Matthias Zachert

RP: The New Year will bring us Donald Trump as the President of the United States. Are you concerned?
Zachert: Many of the statements made during the election campaign obviously give rise to concern. But I hope that Trump will make rational decisions as President. A new protectionism would be especially harmful. It is in the Americans’ and Europeans’ main interest, for example, to reach the free trade agreement TTIP. Free trade increases prosperity. However, the fact, that Trump shows commitment to the industry and plans to give it stronger support, might make us feel positive. I do sometimes miss such a commitment in Germany.


RP: What does the policy change mean to LANXESS, which is strong in the United States?
Zachert: We had already concluded strategically important purchases in the United States before the elections. We acquired the Chemours disinfection business and arranged the acquisition of the lubricant additive producer Chemtura for 2.4 billion euros. If the United States now closed in on themselves, we would already have a strong position there. Our future US business with 2500 employees will represent sales amounting to two billion euros.


RP: The Chemtura acquisition still has to be approved by the antitrust authorities, and those will be controlled by the new government.
Zachert: In this regard, we have made good progress. It has been certain for some days that the US antitrust authorities will not object the acquisition of Chemtura. This will bring us a great deal closer to the acquisition.


RP: Will you be able to close the deal earlier than mid-2017?
Zachert: Antitrust approvals are still pending in some other markets, among others, in the EU and in China. From experience, this will still take some more months. In particular, the Chemtura shareholders must still agree, and that is planned for the beginning of February.


RP: You intend to leverage synergies in the amount of 100 million euros, that is, to save costs after the acquisition. Will any jobs be lost?
Zachert: When synergies are involved, structures are always involved. For example, we do not need two administrative units, or two national companies/national legal entities in countries where LANXESS and Chemtura are both represented now.


RP: Do the employees of the LANXESS head office in Cologne or Leverkusen have to worry about their jobs?
Zachert: No, on the contrary. We are the acquiring company and we are staying in Cologne. Our German production sites will also be strengthened by the planned acquisition.


RP: Bayer is making headlines with a compensation of 123 million dollars for Monsanto CEO Hugh Grant.  Can such an absurd amount in fact be justified?
Zachert: In the US, in acquisitions, it is common practice to pay substantially higher compensations  than in Europe. We have to accept that. In the case of Chemtura, however, the amounts are substantially lower than the sum you mentioned.


RP: Do you have enough money for the acquisition? 2.4 billion euros is not chump change.
Zachert: Yes, we issued a five-year bond at an tremendously low interest of 0.25, as well as a ten-year bond at one percent. Both bonds will yield 500 million each. We collected another 500 million via a hybrid bond, that is, a mixture of loan and equity capital, at 4.5 percent. In this case, we are benefiting from the currently low interest rates.


RP: Do the Lower Rhine sites Leverkusen, Krefeld and Dormagen now have to suffer because funds are short due to the acquisitions?
Zachert: No, on the contrary. We have invested 200 million euros in the German sites in 2016; almost 90% of that goes into the Lower Rhine plants with their approximately 6,000 employees. We are committed to the North Rhine-Westphalia site. We will would like to continue investing. We must, however, remember: this will only be possible in the future, if the boundary conditions remain industry-friendly.


RP: There will be elections in North Rhine-Westphalia in 2017. Are you concerned about the boundary conditions becoming worse?
Zachert: Not every local or federal politician recognizes the value of the chemical industry, although it employs 450,000 people throughout Germany. We need affordable energy, a good infrastructure, reliability and short approval procedures. It cannot be that we have to wait months for the approval of the construction of a new tank farm in North Rhine-Westphalia. It is faster elsewhere.


RP: Is Germany neglecting their industry?
Zachert: Other countries support the industry – I am of the impression that the industry has become the supplicant of German politics. Industry must invest its energy in defensive discussions instead of innovation. I recall our fight to obtain the “Eigenstrom-Privileg” (self-sufficient power privilege, that is, the exemption from the green power levy). Germany is threatening to saw the branch it is sitting on.


RP: Will your hunger be appeased once you have acquired Chemtura?
Zachert: First things first. The main feature of 2017 will be the integration of Chemtura. Once that has been digested, however, we may certainly consider further acquisitions. We want to play an active role in the global consolidation of the chemical sector – by way of new acquisitions as well as by way of organic growth.


RP: Will you ultimately sell the rubber business which you placed in a joint venture (Arlanxeo) with the Arabs?
Zachert: The global rubber market is still suffering from large overcapacity. In view of this, Arlanxeo has done quite well. Anyway, we will maintain the joint venture until at least 2021. Both [scenarios] will then be conceivable: withdrawal or further participation.


RP: Since February, LANXESS’s share price has almost doubled from 33 euros to 62 euros. Are you not feeling dizzy?
Zachert: No, we are glad that the market is rewarding our success story. In 2014, LANXESS was a realignment case; we had to cut back on 1000 jobs and close the Marl plant. But we have done our homework, realigned the Group and significantly reduced dependence on the volatile rubber business. In 2016, we have made two large acquisitions and could increase our full year guidance three times.


RP: Can LANXESS again be promoted to the top-tier stock exchange league?
Zachert: That is a very theoretical question. A promotion to the DAX would most certainly require further years of hard work. Our current stock market value is 5.7 billion euros. The housing company Vonovia, which has displaced us, for example, has a market value of more than 14 billion. If Siemens splits off their medical division, new heavyweights will be added. Anyway, belonging to the DAX is not an explicit goal for us.


RP: Dividends will certainly be higher for 2016 owing to the success.
Zachert: Our shareholders will obviously share in the coRPorate success. We have always stated: LANXESS aims at increasing, but at least stable dividends. We adhere to this. At the General Meeting in spring, the Executive Board will propose how high the dividends for 2016 will be.


RP: What about you? Will you remain CEO at LANXESS after your contract expires?
Zachert: I started here in 2014, and we had to make many tough decisions in the first year. That was a difficult time for everyone and for myself. We are now again on track and the entire team is fully committed. My contract runs until the spring of 2019 and I very much enjoy working with this team. I would like to continue because we still have plans for LANXESS.