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Bayer at 10:1 on Lanxess

By David Reed, UT EditorLeverkusen, Germany-Bayer AG shareholders will receive one share in the new Lanxess AG chemical and polymers company for every 10 they hold in the parent firm, according to a Bayer statement. In a related move, Bayer says it has purchased a €200-million mandatory convertible bond issued by Lanxess, to bolster the financial condition and credit rating of the new firm.Lanxess incorporates most of the chemical activities and about a third of the polymers operations of the former Bayer Group of companies-not including its polyurethanes business, which remains with the Bayer MaterialScience (BMS) unit within Bayer. BMS has recently expressed interest in retaining some of the polyurethane-related activities of Rhein Chemie Rheinau, one of the key components in the Lanxess entity, specifically its PU systems for elastomers.The financial proposal, designated the Spin-Off and Acquisition Agreement, will be discussed and voted on at a 17 Nov. Extraordinary Stockholders’ Meeting in Essen, Germany. If the shareholders approve the plan by a majority of at least 75 percent of the capital stock represented, Lanxess AG will be listed on the stock market at the beginning of 2005, the Bayer statement said. A total of 73 034 192 no-par bearer shares of Lanxess will be allotted to Bayer stockholders. The spin-off is intended to have retroactive economic effect from 1 July 2004, the statement added.Lanxess’ portfolio of products are basic, speciality and fine chemicals as well as polymers which have “a higher level of market maturity,” according to the Bayer statement. “These more cost-driven businesses demand the establishment of leaner structures and the systematic optimisation of production facilities and processes,” the statement continued.Based on combined financials as if its future structure already existed, Lanxess had sales of €3283 million in the first half of 2004, barely changed from the previous year’s €3247 million. By contrast, Lanxess’ operating result (EBIT) improved to €80 million from minus €39 million, while the net loss was just €3 million compared with €58 million for the same period of last year, Bayer said.Bayer stresses that its goal is to wholly divest Lanxess through the planned spin-off, with neither company holding shares of the other immediately following the spin-off. Accordingly, the company says it does not intend to hold the shares acquired through the bond conversion for the long term or use them to influence the policy of Lanxess AG. Nevertheless, Bayer says it intends to divest these shares with the smallest possible impact on their market price.Many ties will remainBayer and Lanxess will continue to trade with each other despite their separation, with supply and service agreements running for between one and seven years, the Bayer statement continued. Some of these agreements include exclusive supply relationships, especially for strategically important products, it added. On the basis of the agreements, the companies of the Lanxess Group are expected to supply goods and services to the value of about €700 million to Bayer in 2005. For its part, Bayer is expected to supply about €500-million worth of goods and other services to Lanxess next year. This figure includes mainly product shipments and also services provided by Bayer Business Services (BBS) and Bayer Technology Services (BTS), two further new entities under the Bayer banner.In addition, Bayer and Lanxess will also jointly operate the chemical park sites in the future. Lanxess will use large sections of Bayer’s main site in Leverkusen, where about 5200 people work for the company. Lanxess has about 2000 employees in Krefeld-Uerdingen and a further 1200 in Dormagen. The company has roughly 20 000 employees in all, about half of whom are based in Germany. Following the spin-off, the Bayer Group will have about 93 500 employees worldwide, including 37 800 in Germany.Complete information on the spin-off of the Lanxess subgroup (comprising some 400 pages) is available on the Internet at http://www.stockholdersmeeting.bayer.com”

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