What's going on?

Germany�s Lanxess, the world�s largest synthetic rubber maker, has agreed to buy US-based chemicals company Chemtura in a $2.7 billion deal. It highlights a burgeoning trend of European companies buying American ones (more on this below).

What does this mean?

Interestingly, shares of the German acquirer jumped more than 8% on Monday, which suggests that investors think the two companies are a good fit (e.g. the combined company will be able to reduce costs and increase revenue quite a bit as a result of the deal). Chemtura�s shareholders get paid cash in a deal that values the company 20% higher than the price at which its stock closed on Friday. So� everyone seems happy!

Why should I care?

For the stock: Lanxess is focusing on more complicated chemicals.
Lanxess has traditionally made rubber for use in things like car tires, but competition in that area has increased a lot. It�s trying to shift into speciality chemicals, like the flame retardants and engine lubricants that Chemtura produces. The idea is that demand for such products is growing more quickly than for synthetic rubber � and that they are more profitable to sell (a.k.a. the products command higher margins).


The bigger picture: European companies are utilizing low interest rates to buy American companies.
The biggest example of this is German-based Bayer�s $57 billion agreement to buy Monsanto. Bayer plans to borrow tens of billions of dollars in the bond market in order to pay for the acquisition. Similarly, Lanxess is expected to borrow money to help pay for this purchase. The extremely cheap borrowing is made possible by the European Central Bank�s (ECB) low interest rates and because the ECB is directly buying companies� bonds (which pushes up the prices of bonds and, therefore, pulls bond interest rates down – click here for a more in-depth explanation). So, effectively, the purchases of US firms by European ones is being financed (partly) by the ECB.