UN Unilever NV

Making use of the strong Swiss franc as a takeover tool, chemicals maker Lonza Group AG (LONN.VX) Monday said it will buy U.S. biocides firm Arch Chemicals Inc (ARJ) for $1.2 billion in cash to broaden the Switzerland-based firm's product portfolio, extend its emerging markets footprint and improve its natural currency hedge.

Lonza said the transaction, which also assumes around $170 million in Arch Chemicals' debt and will be financed through the issuance of euro, Swiss franc and convertible bonds to limit dilution, was partly driven by the Swiss currency's current strength and Lonza's efforts to better protect itself against currency swings.

"The strong franc has certainly helped facilitate this takeover ... which is the next big step in our expansion," said Lonza chief executive Stefan Borgas.

"The deal will also help us improve our natural hedge to limit the impact of currency fluctuations."

Lonza generates a substantial part of its costs in Switzerland and the takeover of the Norwalk, Connecticut-based firm will more evenly spread the Swiss firm's cost base across geographies, Borgas said.

Lonza, which said it would continue to be on the lookout for minor takeovers over the next two years, has been under pressure from the strong franc, its reporting currency, and recently warned that its full-year earnings will be hit by currency-related costs.

The franc has gained around 5% against the euro this year and almost 10% against the dollar, prompting many exporters, who are in a similar position to Lonza, to call for government assistance to limit the currency's damage on the economy.

With the takeover of Arch Chemicals, which had some $1 billion in annual sales, Lonza, which generated more than $3 billion in sales in 2010, will become the leader in the $10 billion microbial control market, which caters to a wide range of industries such as the hospital and water sector, which need products that reduce the risk of mildew and bacteria. Among the largest buyers of these products are retail giants such Procter & Gamble Co (PG) and Unilever N.V. (UN).

Borgas said Lonza and Arch Chemicals had been cooperating for more than 20 years and that this working relationship had intensified over the past one-and-a-half years, making the deal a strategic fit as the U.S. maker will complement Lonza's pharma-based product portfolio and extend its foothold in emerging markets such as South Africa and Brazil.

"There is almost no overlap between our companies," Borgas said. "This is why we expect integration costs of only about $85 million," Borgas said, expecting annual synergies of about $50 million.

Still, analysts were partly skeptical of the deal, saying the takeover jeopardizes Lonza's strong footing in the biotech segment, where it provides ingredients to pharmaceutical giants such as Novartis AG (NVS).

"The combination makes clear sense on the financial level and helps Lonza respond to the pressures in its microbial control business," said David Kaegi, analyst at Bank Sarasin. "On the downside, the deal also dilutes Lonza's biotech investment case, which has hitherto been viewed as being at the core of Lonza."

Analysts also said the takeover price was high.

Lonza is offering a more than 36% premium to Arch Chemicals' average stock price over the last 30 days, prompting the U.S. company's board to unanimously back the offering, which still needs to be accepted by shareholders.

Lonza said the cash offer is subject to customary conditions including the tendering of more than two-thirds of Arch Chemicals' outstanding shares of common stock and clearance from antitrust regulatory authorities. Lonza expects to start the tender offer by 15 July, and completing it later this year.

-By Goran Mijuk, Dow Jones Newswires, +41 43 443 80 47; goran.mijuk@dowjones.com

Unilever NV (NYSE:UN)
Historical Stock Chart
Von Jun 2024 bis Jul 2024

Unilever NV (NYSE:UN)
Historical Stock Chart
Von Jul 2023 bis Jul 2024