Lonza Digs Deeper to Unlock Potential of Arch Chemicals Purchase

Lonza Group AG (LONN), the Swiss chemical maker that purchased Arch Chemicals for $1.35 billion in 2011, is deepening the integration of the businesses to generate more sales from personal-care products.

“Have we got to the bottom of all the chemistries, and know how we are going to apply them all? It’s under investigation at this point,” said Mark Miller, a senior vice president who oversees the consumer-care business unit, in an interview at the In-Cosmetics trade fair in Hamburg this month.

Company strategists are trying to determine how technology can be applied across the unit’s business areas, spanning personal care and preservation ingredients, and nutrition and hygiene additives. One aim is to create new formulations that draw on expertise from different parts of Arch, which was best known for making biocides, chemicals that prevent the growth of microbes such as mold.

Lonza, founded in 1897 in the Swiss Alps, is undergoing its biggest revamp in 15 years as it looks to leverage the Arch purchase to expand in more stable consumer-goods markets to counter the ups and downs of drug ingredients. For Miller, that means pursuing growth in areas such as hair care, where technologies to improve color retention, styling and scalp products are outpacing other areas of the personal-care market, driven by brands such as Unilever’s (UNA) TRESemme and smaller operators.

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“You don’t just build your business on the multinational tier,” the executive said. “A lot of the new trends and ideas come from places like California where multilevel marketing companies need a partner that can create formulations.”

Lonza will probably need to add workers, equipment and competencies as it expands in hair-care products, Miller said. The Basel-based chemical maker also plans to make a deeper push into emerging markets, including China and Brazil, where it’s under-represented.

The Swiss company is the new home of several executives from Cognis, acquired by BASF SE (BAS) for $3.8 billion in 2010. Miller, along with Lonza Chief Executive Officer Richard Ridinger and board member Antonio Trius, came to Lonza from the German cosmetics-ingredients company. Trius was the former CEO of Cognis.

Lonza’s shares have risen about 46 percent in the past 12 months as Ridinger pushed through restructuring measures that lowered the number of full-time employees by 854 to 9,935 at the end of last year. Revenue dropped to 3.58 billion Swiss francs ($4.08 billion) last year from 3.93 billion francs in 2012, in part because of a slowdown in demand for water-treatment chemicals.

Of 17 analysts who share their recommendations with Bloomberg, six recommend buying Lonza shares, while 11 advise holding the stock. UBS added the company to its “Alpha Preferences” list as a most-preferred pick on April 11, saying that Lonza may provide more clarity on its restructuring plans in a quarterly update on April 24.

“It takes you a while to restructure an organization, and we have many different efforts under way,” Miller said. “2013 was a year of trading strategy, 2014 is a year of executing the strategy.”

To contact the reporter on this story: Andrew Noel in London at anoel@bloomberg.net

To contact the editors responsible for this story: Simon Thiel at sthiel1@bloomberg.net David Risser, Robert Valpuesta

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