The European Commission has approved, subject to conditions, the acquisition of speciality chemicals company Degussa by the German mining and technology group RAG.
The transaction initially raised competition concerns in the construction materials sector, with fears that the combination of RAG's and Degussa's activities could have led to the creation of a dominant position in input products for concrete admixtures. However RAG offered to divest its production capacity for Naphtalene Sulfonate in the EU, an important concrete admixture input product, which removed the Commission's concerns, it said.
RAG is an international mining and technology group with activities in coal mining, power generation, environmental technology, chemicals and plastics. Following the takeover bid announced in the spring, RAG made a public offer of €38 per Degussa share in June. A clear majority of Degussa's free float accepted this offer in the summer. Altogether, 46.48 per cent of Degussa stock has now been tendered to RAG. RAG plans to raise its stake to 50.1 per cent in a second step on 31 May 2004.
The proposed acquisition of Degussa depends however on completion of the planned sale of RAG's shares in Ruhrgas to E.ON, which currently owns 64 per cent of Degussa. A deadline of 31 January 2003 has been set for this.
Degussa activities range from food additives and health ingredients to construction chemicals, coatings and speciality polymers. The company, which also announced it had set up a holding company in China this week, reported sales of € 8.3 billion in the first nine months of 2002, almost the same level as the same period last year. However divestments of non-core businesses meant a drop in overall sales from last year's figures, and EBIT (earnings before interest and taxes) for the core businesses were down 3 per cent to €745 million, from last year's €769 million.
Degussa is clearly being impacted by current economic conditions with the Health & Nutrition, Fine & Industrial Chemicals and Specialty Polymers divisions all reporting lower earnings for the third quarter. In a statement on release of the interim results last week, CEO Professor Felcht said : "In view of current economic trends, we do not expect the economy to pick up until next year. Moreover, the upturn will be more modest than previously anticipated."
At present, full-year sales for Degussa's core businesses are expected to be around €11 billion - virtually unchanged year-on-year. EBIT and the operating result should also be roughly the same as last year.