Frankfurt, Germany, February 1--Lanxess AG, the spun-off chemicals and polymers business of German drug maker Bayer AG, made its debut on the Frankfurt stock exchange Monday.
The first German stock market debut of this year got off to a solid start on Monday, as shares in chemicals group Lanxess traded at about €14, more than many observers had expected.
Spun off from Bayer the pharmaceuticals and chemicals giant best known for inventing Aspirin 100 years ago, Lanxess groups mainly low-margin, low-growth chemicals and polymers businesses, and is now Germany's third-biggest pure chemicals company by sales.
Although its creation coincides with an improvement in chemicals demand, its management faces an uphill struggle in boosting margins to a targeted 9-10 per cent by 2006, pay down debt and streamline the incoherent portfolio it inherited from Bayer.
As a result, analysts' assessments of the fledgling company vary widely, with valuations ranging from €7 to as high as €18 a share. The shares were also expected to come under pressure as index or sector-linked funds pull out for technical reasons.
Lanxess shares opened at €15.75 and later hovered above €14 amid heavy trading, valuing the company at about €1bn.
"The share price has huge upside potential if the management is successful in changing the business portfolio," said Andreas Heine, analyst at HVB Group. "However, we do not expect that the share price will factor in this potential right from the beginning."
Many institutional investors are likely to take a wait-and-see approach and look for progress on cost-cutting. Chief executive Axel Heitmann last week told the FT that he would announce a further package of restructuring measures this summer. Disposals, partnerships for underperforming businesses and acquisitions are further off.
For Bayer, the Lanxess spin-off is part of the biggest restructuring in its 142-year history. It leaves the group focused on healthcare and agrochemicals products as well as higher-margin "material science" chemicals and polymers businesses. As such, it is positive for Bayer.
