Lanxess partners with Saudi Aramco for €2.75 synthetic rubber venture

German chemical group Lanxess has partnered with Saudi Aramco to create a €2.75bn synthetic rubber joint-venture.

Under the deal, Aramco Overseas Company, a subsidiary of Saudi Arabian oil company Saudi Aramco, will pay around €1.2b in cash for a 50% stake in the joint-venture.

Lanxess is partnering with Saudi Aramco to get better access to raw materials, while the Saudi Arabia owned company is looking to diversify into higher value chemical products.

The transaction is awaiting the approval of the relevant antitrust authorities, which is expected to be completed in early 2016.

Lanxess will provide its synthetic rubber business to the proposed joint-venture, which includes the tire and specialty rubbers, and high performance elastomers business units, as well as its 20 production facilities accross nine countries, and around 3,700 employees and extra support staff.

The joint-venture will have competitive and reliable access to strategic raw materials from Saudi Aramco.

Lanxess CEO Matthias Zachert said: "This alliance will enable us to give the rubber business a very strong competitive position and the best possible future perspectives

"Through the joint-venture agreement we are investing in a world-class synthetic rubber and elastomer products capability."

"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."

Saudi Aramco senior vice-president downstream Abdulrahman Al-Wuhaib 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."

A holding company, with equal representatives from both Lanxess and Saudi Aramco will manage the new joint-venture. the holding company's headquarters in the Netherlands.

Lanxess will appoint the CEO and Aramco Overseas Company will appoint the CFO of the company. Each company will have equal representation on the joint-venture's board of directors.

The joint-venture is a part of Lanxess' third stage of its three-phase realignment programme.

Lanxess expects to invest approximately €400m of the profits from the latest transaction in advanced intermediates and performance chemicals.

It also plans to use another €200m to reduce its financial debts, and around €200m for a share buyback programme.