Lenzing acquire Tencel (2004)

Points to Note:

• This take-over will be approved by the EC because Tencel's sales in 2003 were worth less than  €100 million ($119 million)
• "This is by far the best solution..." (It would be interesting to know what Lenzing paid CVC.)
• "The fastest growing part of the [Tencel] market is wipes".
• New capacity expected soon in Asia.

Lenzing AG has agreed to acquire, for an undisclosed sum, Tencel, its main competitor in the growing market for lyocell cellulose fiber, in which both companies are facing the prospect of strong competition from new Asian producers.

Although the deal gives Lenzing a monopoly in lyocell capacity in both Europe and North America, the takeover is unlikely to be barred by competition authorities. Tencel’s sales of around €100 million ($119 million) in 2003 are below the threshold above which its acquisition would have to be approved by the European Commission (EC).

Three years ago, the EC blocked a move by CVC, the international financial group, to take over Lenzing and merge it with its fibers subsidiary, Acordis, of which Tencel was then a part.

“We’ve examined the competition implications very carefully,” says a Lenzing spokesperson. “The deal is totally different from the one which was proposed three years ago.”

“Not only is Tencel not big enough to come under antitrust rules, but it formed only a small part of what was Acordis, whose major business like Lenzing’s was viscose fibers,” she adds.

UK-based Tencel, which has a total of around 60,000 tons per year of operating capacity in Mobile, Ala., and in Grimsby, England, was last year spun off from Acordis in order to make it easier to divest.

“Our owners have been trying to dispose of Tencel for the last three years,” says Mike Proctor, chief executive of Tencel whose fiber is marketed under the Tencel brand name. “This is by far the best solution for all stakeholders.
Besides ourselves Lenzing have been in the market longer than anyone else and they know the technology.”

With the acquisition, Lenzing, which sells its lyocell under the Lyocell brand name, will have around 100,000 tons of annual operating capacity, including 40,000 tons of its own at Heiligenkreuz, Austria. Tencel also has a 17,000 ton-per-year mothballed plant at Mobile.

“We are tripling our lyocell capacity and thereby reaching the critical size that is necessary for a sustainable and profitable lyocell operation,” says Thomas Fahnemann, Lenzing’s chairman.

“With Tencel the brand name, we are taking over a most successful brand, together with its international marketing team,” he continues. “We expect major stimuli for our development work from the broad mutual exchange of experience and technology that has now become possible.”

Tencel’s operation was originally set up in the early 90s when Courtaulds, its then owner, first launched the fiber. Lenzing’s first lyocell plant started production in 1997.

Demand for lyocell has only recently taken off after the new fiber had difficulties gaining acceptance by textile producers. Tencel has been making big inroads into the nonwoven sector while Lenzing’s Lyocell has been successful in the apparel segment.

“We sold only 3,000 tons in the nonwoven sector three years ago,” says Mr. Proctor. “This year we will sell 20,000 tons in the sector, probably significantly more. The fastest growing part of the market has been wipes, for which Tencel’s very high wet strength is suitable.”

Over the last one to two years Korean, Chinese, Japanese and Indian producers have begun to enter the lyocell market, although with relatively small capacities.

“Now that the technology has proven itself there is considerable interest in it,” Mr. Proctor. “Both ourselves and Lenzing have been well ahead of other competitors for a quite a while. We are aware of plans for new capacity in a number of Asian countries, and we expect sizeable plants could soon be operating in Asia.”

The technology, which uses a direct solvent process for dissolving cellulose before it is spun into the fiber, was first developed in the 1980s and licensed to Courtaulds and Lenzing by Akzo, prior to its merger into Akzo Nobel. Lenzing and Courtaulds settled a series of patent disputes over the technology in 1998 with an agreement on exchange of know-how.

Source: ICIS