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Ciba Specialty Chemicals to Purchase Raisio Chemicals Paper Business in Finland

Published on 2004-03-19. Author : SpecialChem

Ciba today announced that it has signed an agreement to purchase Raisio Chemicals of Finland, from Raisio Group, for Euro 475 million (CHF 736 million), creating a top-tier chemical supplier in the paper industry. Raisio Chemicals sales for 2003 were €Euro 422 million, or approximately CHF 650 million. The agreement is expected to close in the second or third quarter of 2004, subject to the customary regulatory review.

The purchase brings together two complementary paper chemical supply businesses. The combined product portfolios will provide global customers with an opportunity for broad "one-stop shopping" solutions. The combined market strengths, in diversified geographic areas, will open substantial cross-selling and market penetration opportunities. Raisio Chemicals has some 1,100 employees, one-third of whom are based in Finland.

Ciba plans to further build on Raisio Chemicals' strategic positioning in the Scandinavian market, the center of the global paper industry. Ciba will combine its product development, application technology and technical customer service operations in Finland and fully utilize Raisio Chemicals' Technology Campus in Turku. The existing Raisio Chemicals marketing centers in Finland would remain. In addition, Ciba will install a regional support structure, based in Finland, for the development of all business in Scandinavian countries and Russia.

The acquisition is expected to be earnings enhancing in the second year and to contribute to the sales and margin growth targets of the segment and the group. One-time restructuring costs, to implement synergy savings, are currently estimated at less than CHF 100 million after taxes. As is customary, an independent firm will separately appraise in-process R&D.

Armin Meyer, Chairman and Chief Executive Officer of Ciba, commented: "The planned acquisition of Raisio Chemicals is a first-class strategic fit and a complementary expansion of our business. This move will create a top-tier player in the paper chemicals supply field, with a broader line of products and also a much wider geographic reach. By combining our strong R&D operations, near key European customers, we will be better positioned to meet their future needs. After completing the regulatory review process, we will implement our integration plan quickly. With this acquisition, which is in line with our clear M&A targets, Ciba retains a strong balance sheet, which provides us continued flexibility for the future."

Mr Rabbe Klemets, CEO of Raisio Group commented: "Our main target for the divestment of Raisio Chemicals was to find a good home for it with the best possible financial outcome for Raisio Group and its shareholders. This announced deal with Ciba fulfils our objectives and we are pleased with the successfully completed negotiations. We highly appreciate the industrial buyer Ciba's strong commitment to further develop Raisio Chemicals as a key part of the Finnish forest cluster."

Complementary product match broadens "one-stop shopping" offer

The combined portfolio provides both a broader offering to customers, particularly in functional chemicals and in the fast-growing field of paper coating additives, as well as increased depth at several locations along the paper chemicals product chain. This allows the one-stop shopping increasingly requested by many customers.

Raisio Chemicals' key business areas include latex binders that are used to improve paper appearance, printability and readability; starch binders used to improve the internal and surface strength, as well as the printability, of paper and board; and specialty chemicals such as hydrophobic sizing agents, specialty wet end polymers, de- inking chemicals and coating additives. Ciba currently offers a wide range of paper chemicals for both process and functional paper making applications, including drainage and retention aids, fixatives, paper whiteners, paper coloration, coating additives, surface modifiers, barrier effects, sizing agents and products for carbonless and thermal papers.

Excellent geographic fit opens additional markets

Ciba currently serves the global paper industry with particular strengths in NAFTA, Europe and Asia. Raisio Chemicals, meanwhile, is well positioned in Scandinavia, China and Russia. Together, the broader line of paper chemicals can be cross- sold to a wider array of new customers in new markets.

Raisio Chemicals has recently opened two new manufacturing facilities in China, a latex binders plant in Jiang Su and a specialty chemicals plant in Tianma. Combined with Ciba' presence in China, this offers an excellent avenue for further sales growth in the fast-growing Chinese market.

Commitment to Finland as new hub for Ciba

Following regulatory approval, Finland will be strengthened as a regional hub. Ciba' Paper business will combine its product development, application technology and technical customer service operations in Finland. Ciba also plans to locate key account management for Scandinavian clients and certain global or European leadership functions for the combined business portfolio in Finland.

Key to the successful development is Raisio Chemicals' Technology Campus in Turku, Finland, where three customer-focused research facilities are based: the Coating Technology Center, the Paper Technology Center and the recently opened Future Printing Center. Raisio Chemicals' paper pilot production unit also allows for unique research opportunities. This campus is a strong contributing factor in preserving the customer service element, particularly among the major Scandinavian paper customers. Ciba sees substantial benefits in further developing this in Finland. Therefore, Ciba also plans to further enhance the close cooperation with local universities, by, for example, offering to sponsor a chair for paper chemistry at a local institution.

In light of the substantially increased activities in Scandinavia, and the future opportunities available in Russia, Ciba plans to install a regional support structure, based in Finland, for the development of all its segments in Scandinavian countries and Russia.

Financial terms meet strict acquisition targets

The purchase agreement calls for Ciba to pay a total of Euro 475 million (CHF 736 million) for Raisio Chemicals, which consists of cash and assumed debt. The acquisition is expected to be earnings enhancing in year two and to contribute to the sales and margin growth targets of the segment and the group.

Following regulatory approval, Ciba will review the combined activities and the enlarged production network of the new entity during its integration process with the aim of identifying synergies. Present estimates are that one-time restructuring expenses at Ciba would be somewhat less than CHF 100 million after taxes. As is customary, Ciba will hire an outside appraiser to independently analyze in-process R&D valuations, which may also result in one-time expenses.

The final closing date is subject to the length of the regulatory review, but is currently expected in the second or third quarters of this year. "We have conducted a very thorough due diligence. The business logic behind this deal and the price to be paid are sound. The multiples behind the price are in line with current market conditions," commented Armin Meyer. "Strategically, it is a sensible move. We look forward to welcoming Raisio Chemicals into Ciba."

Source: Ciba


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