Lanxess Bets on CEO Marathon Stamina to Find Right Track
Lanxess AG (LXS)’s incoming chief executive officer, Matthias Zachert, has a “hardcore” approach to getting staff to sign up for running events -- cajoling them at lunch breaks or in meetings, says Rando Bruns, treasurer at Zachert’s current employer Merck KGaA.
Zachert, 46 years old and an avid runner, may need some of the stamina he uses to finish half marathons when he starts tomorrow at Cologne, Germany-based Lanxess.
The company, the world’s largest maker of synthetic rubber, in February posted its first annual loss since it was spun off from Bayer AG (BAYN) in 2005, cut its dividend in half and was the second-worst performer on Germany’s benchmark index last year. At stake for Zachert, who was finance chief at Lanxess for seven years until 2011, will be tackling a portfolio heavily geared toward the auto and tire industries after European car sales fell to a 20-year low last year.
“Zachert desperately needs to wave a magic wand,” said MM Warburg analyst Oliver Schwarz, who has a hold rating on the company’s shares. “He could cut the Gordian knot by selling part of the company for an attractive price, preferably a bit that has lower margins.”
Lanxess’ board decided to replace former CEO Axel Heitmann after the company failed to close on acquisition opportunities to reduce its reliance on the auto and tire industries, a person familiar with the matter said when Zachert’s appointment was announced on Jan. 26. The company also expanded its synthetic rubber operations in Asia after that business began struggling from price competition.
Zachert, who will be the youngest CEO running a company in Germany’s DAX index, got advance praise from investors. The announcement in January on his return after a three-year stint as CFO at drugmaker Merck moved the market values of both companies, with Lanxess rising 9 percent and Merck falling 11 percent at the open of trading. Lanxess lost 27 percent in 2013. Today, the stock gained 1.3 percent to 54.80 euros as of 11:05 a.m.
Zachert declined to be interviewed about his strategy and potential portfolio changes at Lanxess.
The new CEO could solve several problems at once if he sold the Keltan business, which makes ethylene propylene diene monomer, or EPDM, a synthetic rubber used in car-door sealants and wind-screen wipers, according to MM Warburg’s Schwarz.
Lanxess’s net loss of 159 million euros for 2013 was triggered by an impairment charge at the Keltan unit. The business won’t generate the cash previously expected because too much extra capacity for EPDM is being built, Lanxess CFO Bernhard Duettmann said in February. The company itself is exacerbating the problem by building a 235 million-euro factory in Changzhou, China.
While selling Keltan would be a radical step, a sale at an attractive price would give Lanxess financial flexibility, cut expenditures and may even result in a book gain, Schwarz said.
Zachert, who did an apprenticeship at carmaker Mercedes-Benz in Stuttgart after graduating from school and then studied business administration, hasn’t yet commented on potential portfolio changes, though he said that a tight grip on Lanxess’s spending will be one of his first priorities.
“Cash discipline was basically abandoned,” Zachert, who is married with three children, said on the sidelines of a Merck press conference this month. “Despite high profitability, there was practically no cash generation anymore because everything was expensed or capexed.”
Zachert is unusual because he doesn’t play by the old-boy network rules of “you help me if I help you,” said Ulrich Koemm, a former Lanxess board member who worked with him from 2004 to 2007. He also doesn’t shy away from arguing his point in executive meetings even if others disagree with him, he said.
“When he was overruled he was very loyal, at least to the outside world,” Koemm said in an interview. “Internally, there was a lot of conflict.”
That directness may help Zachert to revive Lanxess, said Deutsche Post AG CFO Larry Rosen, who has known Zachert since the 1990s when they worked together at chemical company Hoechst AG. “If I had to go into trench warfare, Matthias would be one of the first guys I would pick to be on my side,” he said.
Power of Persuasion
Zachert’s power of persuasion certainly succeeded at his half-marathon recruiting missions in corporate lunch rooms.
“When you go with him to the canteen, you can be sure that within a radius of a few meters everyone has been spoken to and asked if they would like to take part,” Merck’s Bruns said. “Some are hesitant and there is some wrangling. It’s hardcore.”
During his time as Lanxess CFO, the company’s participation in the local half-marathon in the city of Leverkusen jumped sixfold to more than 600 employees the year Zachert started recruiting in earnest. Bruns is now rallying support for a Merck team to take part in Lanxess’s Leverkusen race on June 15.
“Zachert always challenges us so we are turning it around and are challenging him,” he said.
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