Chemical maker Lanxess AG (LXS), the second-worst performer on Germany’s DAX index last year, named Merck KGaA (MRK) finance chief Matthias Zachert as CEO, displacing Axel Heitmann. Lanxess stock rose the most in more than two years while Merck fell the most in more than four.
Zachert will start by May 15, the Cologne, Germany-based company said yesterday. Heitmann will leave on Feb. 28 and Finance Chief Bernhard Duettmann will act as chief executive officer in the interim. Zachert was previously Lanxess’ chief financial officer and left that job in 2011 to join Merck.
The new CEO needs to revive earnings and sales at the synthetic rubber maker, which generates about 40 percent of revenue from the auto and tire industries. European car sales have declined for six consecutive years, thus far defying Heitmann’s prediction that the industry weakness is temporary.
“Heitmann’s departure is surprising, but Zachert’s return is gob smacking,” Norbert Barth, an analyst at Baader Bank AG in Frankfurt, said by telephone. “Zachert will go into the costs in detail, focus on cash flow and working capital. He’ll probably do a review of the portfolio to see if something can be done there.” Barth, who rates Lanxess hold, said he would wait to see which concrete measures Zachert will take before changing his recommendation.
The stock gained as much as 10 percent, the biggest intraday jump since October 2011. It was trading up 8.3 percent to 48.76 euros as of 11:10 a.m. in Frankfurt, boosting the company’s market value to 4.1 billion euros ($5.6 billion). The stock lost 27 percent in 2013. Only potash producer K+S AG dropped further, declining 36 percent.
Lanxess’ board decided to appoint a new CEO after the company failed to close on acquisition opportunities that would have reduced its reliance on the auto and tire industries, according to a person familiar with the matter, who asked not to be named as the matter is not public.
The company also stuck to large expansions in synthetic rubber even after the business started struggling under price competition, the person said.
“Lanxess is facing significant challenges, for example in terms of market capacities and business portfolio,” Chairman Rolf Stomberg was quoted as saying in yesterday’s statement. “Therefore, the supervisory board believes it is the right time to hand over responsibility to a new leadership.”
A Lanxess representative declined to comment beyond the company’s statement.
Zachert, 46, was contacted by the head of Lanxess’ supervisory board a few days before Christmas and it took him until last week to make up his mind, he said on a Merck conference call with analysts.
“You do not often have this opportunity especially if you have still some strong emotions left with the company that you are joining,” Zachert said on the call. “It’s going to be a tough, challenging, a long and winding road, but the ingredients of Lanxess are good.”
Lanxess decided against buying chemical maker Taminco in 2011 because it wasn’t prepared to meet private-equity owner CVC Capital Partners Ltd.’s asking price, a person familiar with the matter said at the time. Lanxess lost out to Apollo Global Management LLC, which agreed to acquire Taminco in December 2011 and then sold shares in the Allentown, Pennsylvania based manufacturer through an IPO last year.
In November, Heitmann lowered the top end of the company’s profit goal range and said Lanxess has had to make price concessions because of falling market prices and as customers use lower rubber prices to build inventory. The maker of synthetic rubber and agrochemicals said emerging markets will provide only limited impetus and it doesn’t yet see lasting stability in Europe.
Lanxess is cutting jobs and bonuses and has said it’s exploring strategic options for some units that don’t fit its main business. Divisions with about 500 million euros in combined sales and 1,000 workers may be sold or put into joint ventures within two years, Heitmann said last year.
Zachert left Lanxess for Merck in 2011, when the Darmstadt, Germany-based pharmaceutical and chemicals company was one of Europe’s worst-performing stocks.
In the past year, the stock has returned more than 30 percent to shareholders as Merck undergoes a restructuring which includes cutting 1,100 jobs in Germany and the closure of the Geneva-headquarters of its Serono pharmaceutical business following several drug-development failures.
Merck CEO Karl-Ludwig Kley, who turns 63 this year and whose contract ends in 2016 and could be renewed, said “the transformation process continues unabated” following Zachert’s departure.
Merck shares fell as much as 12 percent, the steepest intraday decline since July 2009.
Zachert “significantly contributed to further developing Merck in a positive way. His transparent capital market communication has clearly helped boost investor trust in our company,” Merck said. The board or partners will decide on a successor “in due course.”
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