Ciba moves to strengthen its paper business

The Raisio plant is 170 kms south-west of the Finnish capital, Helsinki. Ciba

Ciba Specialty Chemicals has announced a major acquisition, with the purchase of the paper unit of Finland’s Raisio group for €475 million (SFr736 million).

Basel-based Ciba said the deal would strengthen its position as a leading paper industry chemicals supplier.

A statement from Ciba, whose products include dyes for compact discs and red pigments for Ferraris, on Friday said the move brought together two complementary paper chemical supply businesses.

Raisio Chemicals, which makes starch and latex binders to improve the appearance, strength and printability of paper, had sales of €422 million in 2003.

Company chairman and chief executive Armin Meyer commented that the planned acquisition was a “first-class strategic fit”.

“Strong balance sheet”

Ciba said it planned to further build on Raisio Chemicals’ strategic positioning in the Scandinavian market, the heart of the global paper industry.

One-off restructuring costs to implement synergy savings are estimated at less than SFr100 million after taxes.

Ciba said that it did not need to tap investors for fresh funds to finance the deal.

“With this acquisition, which is in line with our merger and acquisition targets, Ciba Specialty Chemicals retains a strong balance sheet, which provides us with continued flexibility for the future,” Meyer commented.

“We have conducted a very thorough due diligence. The business logic behind this deal and the price to be paid are sound… Strategically, it is a sensible move,” he added.

But analyst Bernd Pomrehn at the cantonal bank of Zurich was not so enthusiastic about the purchase price.

Earnings dilution

“We are not really convinced by the price,” Pomrehn said. “The operating profit of Raisio Chemicals has never been above €15 million in the last three years.”

“Restructuring costs of SFr100 million is not low, so we [forecast] quite a big earnings dilution, especially in the first year,” he added.

The final closing of the deal is expected after regulatory review in the second or third quarter of the year.

Ciba, which has been on the search for acquisitions, said the deal would enhance earnings in the second year of completion.

swissinfo with agencies

Key facts

Ciba Specialty Chemicals makes products that add colour and strength to textiles, plastics, paper, cars, buildings.
The company, which operates in more than 120 countries, posted sales of SFr6.6 billion and a net profit of SFr344 million in 2003.
Raisio Chemicals, a global manufacturer and supplier of paper chemicals, generated sales of €422 million in 2003.

In brief

The purchase agreement calls for Ciba Specialty Chemicals to pay €475 million (SFr736 million) for Raisio Chemicals, which consists of cash and assumed debt.

Ciba said the deal was an “excellent” geographic fit that would open additional markets.

The fast-growing Chinese market, in particular, is seen as an avenue for further sales growth.