Arch Chemicals’ upcoming acquisition by an international biocide company is not expected to alter its core business, but some speculate that changes could follow.
In July, Arch Chemicals Inc. entered into an agreement to be purchased by Basel, Switzerland-based Lonza Group Ltd., a supplier to the pharmaceutical, health care and life science industries. Lonza tendered an offer to buy all shares of Arch for $47.20 per share or approximately $1.4 billion total, financed completely by debt. The deal is expected to close later this year, pending regulatory approvals. Arch produces several popular pool- and spa-chemical brands, with a presence in more than 150 countries.
Once the deal closes, Arch will combine with the Swiss producer’s microbial control business to form Lonza Microbial Control, to be headquartered in Basel and led by newly named COO Jeanne Thoma.
Other shifts may take place, but not right away. “Some changes can be expected as we work through bringing the organizations and systems together...” said Lonza spokesperson Melanie Disa. “For now, it’s business as usual.”
Lonza officials expect existing Arch brands to remain largely intact. “We find great value in the brands which have been established. We will build on what has already been done and make changes only as needed,” Disa explained.
Arch’s current facilities and staff working the pool chemical division also should remain in place, she added.
Though Lonza is planning to reduce expenses by $50 million beginning the second year, those cuts are expected to come mostly from the administrative side, company officials said in a presentation to investors.
Industry observers don’t predict much streamlining of pool and spa products because the firms bring complementary offerings in that arena: While Arch offers calcium hypochlorite and biguanides, Lonza produces quaternary ammonium, used on many algaecides, and bromine products.
Some insiders have heard that the president/CEO of Arch Chemicals, Michael Campbell, wants to retire soon, and they speculate that this may provide Campbell and other longtime pool industry veterans an opportunity to exit seamlessly.
Others wonder whether the shift in ownership will mean a price hike for pool and spa chemicals. “Every time these big companies buy big companies, they raise the threshold for profitability to get their money back as a return on investment,” said Bill Kent, president of Team Horner in Fort Lauderdale, Fla.
However, others point to the already tight competition between Arch and its competitors, such as fellow heavy-hitter BioLab Inc., based in Lawrenceville, Ga.
Though this transaction does see the merging of two large companies, it doesn’t eliminate any competitors, since Lonza comes from outside the industry, said Brian Quint, president of Aqua Quip Pools in Renton, Wash. “So I don’t think they’re going to be able to command a price increase, unless there’s a difference in pricing strategy at Lonza’s level.”
What is currently known is that the acquisition will boost Lonza’s revenue significantly, particularly in microbial control. While the Swiss producer reported approximately $2.57 billion in sales last year, Arch reported approximately $1.4 billion — about $1.2 billion of which came from microbial control. By contrast, only about $350 million of Lonza’s 2010 revenues came from microbial control products. The Arch acquisition also will extend Lonza’s reach into growth markets such as China, Brazil, India and South Africa, officials said.
The Swiss firm actually has a history with the pool industry. It purchased chemical producer BioLab in 1979, then sold it to Great Lakes in 1991.
Arch declined to comment on the acquisition or its potential effects.