Arch deal raises questions on HQ

The board of Arch Chemicals Inc. is supporting a $1.2 billion takeover bid by Lonza Ltd., with the Swiss company aiming to create the world”™s largest maker of solutions to expunge contaminants from household and industrial products.

The deal could have ramifications for Arch”™s Norwalk headquarters, with Lonza seeking initial savings through the elimination of overlapping management responsibilities. If a major player in its industry, with 3,000 employees and nearly 25 manufacturing and research facilities worldwide, Arch maintains a relatively small local presence at its head office in Merritt 7 Corporate Park.

“We have two companies coming together (as) one, so we need only one corporate overhead organization,” said Stefan Borgas, CEO of Lonza, speaking in a conference call from Switzerland last week.

Arch”™s longtime CEO Michael Campbell, a former chairman of the American Chemistry Council, did not participate in the call. Campbell has led the company nearly since its inception, having previously been an executive with Olin Corp. which formed Arch in 1998 as a way to spin off its specialty chemicals business.

Today, that business has evolved to mostly selling decontaminants to scrub out impurities in products ranging from shampoo to pool water ”“ so much so that Arch dubs itself “the biocides company” as a result.

“Arch should not be called Arch Chemicals,” Borgas said, taking things a step further. “Arch should today be called “Arch Microbial Control” because the vast majority of their business ”¦ is in microbial control.”

Based in Basel, Switzerland, Lonza has focused on selling peptides and other molecular products for use by pharmaceutical companies, as well as chemicals to a wider range of household consumer products companies.

Lonza employs some 8,200 people, a quarter of them in the U.S. where it has major production facilities in Hopkinton, Mass., Portsmouth, N.H., and Walkersville, Md. Just 550 of those workers focus on the microbial-control products Lonza has in common with Arch, however.

Arch revenues totaled $1.4 billion last year, and combined with its own business Lonza estimates the deal will give it a commanding $1.6 billion share of a microbial-control market it estimates at roughly $10 billion globally, with Brazil, India and China representing the fastest-growing markets.

Lonza is offering more than $47 in cash for each share of Arch held by its stockholders, representing a 37 percent premium over Arch”™s average share price over the past month.

As of the close of 2010, four investors control nearly four in 10 shares of Arch: T. Rowe Price Associates Inc., Michael W. Cook Asset Management, BlackRock Inc. and AllianceBernstein L.P.

With some 200,000 shares at last report, Campbell”™s stake in Arch is worth more than $9 million at the valuation offered by Lonza. Arch calculated his compensation last year at $8.4 million.

Lonza said it hopes to complete the tender offer by the end of this year, without specifying a more specific date. To succeed it must successfully buy more than two-thirds of Arch”™s stock while getting clearance from antitrust regulators in the U.S. and Europe.

Borgas expressed confidence the companies”™ complementary product offerings would make for a smooth regulatory review, with the U.S. Department of Defense possibly getting its own look at the deal due to its use of Arch products.

“In the due diligence we have looked at this and there was no red flag that came up,” Borgas said.