Stahl, the leather-chemicals company owned by French investment group Wendel SA, is in exclusive talks to buy a competing business of Clariant AG to target more clients in industries from shoes to car upholstery.
Under the proposed terms, Muttenz, Switzerland-based Clariant will receive 85 million francs ($94 million) and a 23 percent stake in Stahl, which supplies leather treatments, dyes and coatings. Wendel would have about 70 percent, Clariant said in a statement.
The $4 billion leather-chemical industry is starting to consolidate after more than five years of failed attempts by the dominant companies including BASF SE and Lanxess AG to merge assets amid rising competition from Asia. Last month, Black Diamond Capital Management LLC agreed to buy German leather company TFL Holding. The deal between Wendel and Clariant would create an company with total sales of about 616 million euros ($846 million).
“We like the merger as there is significant upside potential for the leather business due to the current consolidation of the market,” Markus Mayer, an analyst with Kepler Cheuvreux, wrote in a note to investors.
An initial public offering of Stahl may be considered from 2016, Bernard Gautier, a board member of Wendel, said on a conference call today.
“It’s a superb opportunity for Stahl, which will almost double its market share in leather, further reinforce its already strong presence in Asia, and grow globally,” Gautier said. “It’s a market that grows around 3 percent annually over the long term.”
For Clariant, the deal boosts Chief Executive Officer Hariolf Kottmann’s drive to exit commodity chemicals and focus on more profitable areas like agrochemicals and ingredients for shampoos and moisturizers.
Clariant will receive dividends from Stahl and aims to sell its stake at some point, Clariant Chief Financial Officer Patrick Jany said on a call.
“At one point in time, as with any company which is in private equity hands, there is a change of ownership, and we will then also change ownership,” he said.
Clariant rose as much as 4.3 percent to 15.8 francs in Zurich and was up 3.9 percent as of 11:11 a.m., while Wendel rose 0.3 percent in Paris.
“Consolidation in the leather industry has been something everybody talked about but no one executed on it for quite a few years,” Jany said in a phone interview. “I’m sure others will have a look at it,” he said, referring to competing manufacturers of leather chemicals.
Clariant this month already agreed to sell a unit making detergent and intermediate chemicals. Today, the company said that third-quarter sales declined 3 percent to 1.44 billion francs.
The transaction values Clariant’s leather unit, which employs 550 employees, mostly in Germany, India and Italy, at about 7.5 times Ebitda, the company said. Clariant said the transaction could be finalized in 2014.
The new leather-treatment group would have had 77 million euros of earnings on that measure in 2012, Wendel said in a statement. Its Ebitda margin should exceed 15 percent within 18 months after the transaction has closed as Wendel predicts more than 15 million euros in synergies, Gautier said.