Lonza Group Ltd one of the world’s leading suppliers to the pharmaceutical, healthcare and life science industries, and Arch Chemicals, Inc. a global biocides company providing innovative solutions to destroy or to selectively inhibit the growth of harmful micro-organisms, announced that they have signed an agreement pursuant to which Lonza has agreed to commence a tender offer for 100 percent of Arch Chemicals’ outstanding shares of common stock at a price of US$ 47.20 per share in cash.

Lonza’s offer represents a 36.7 per cent premium to Arch Chemicals’ average closing price over the last 30 trading days. Based on the offer  price for all the outstanding shares, Arch Chemicals’ enterprise value would be US$ 1.4 billion (approximately CHF 1.25 billion).

Lonza’s cash offer is subject to customary conditions including the tendering of more than two-thirds of Arch Chemicals’ outstanding  shares of common stock and clearance from antitrust regulatory authorities. Lonza expects to commence the tender offer by 15 July 2011 and to complete the tender offer later in 2011. Stefan Borgas, CEO of Lonza, said: “This transaction represents an excellent  strategic and cultural fit. Lonza and Arch Chemicals offer highly complementary products and technologies and together will be the global leader in controlling unwanted microbes. The business will enjoy a strong platform for accelerated future growth for the benefit of all our stakeholders.”

Michael Campbell, chairman, president and CEO of Arch Chemicals, added: “We are pleased to have reached this agreement with Lonza, a company that knows our business well and shares our commitment to  continuous improvement in innovation, operational excellence, safety and sustainability. We are confident that we have found the right strategic partner to  help our business reach the next level of success. This compelling transaction offers Arch Chemicals shareholders a meaningful premium for their shares and will create exciting opportunities for Arch Chemicals employees, while enhancing offerings for customers.”

Upon completion of the transaction, Lonza will have the world’s leading microbial control business with 2010 pro-forma sales in this life science market of approximately US$ 1.6 billion, combining the complementary product solutions of both companies. Customers, as a result, will have in Lonza a complete solutions provider for their microbial control needs, and the new business will be ideally positioned to increase R&D and product development spending across its broader product portfolio.

Lonza will offer this complementary range of products and actives to a broader range of customers in both established and emerging markets. The hygiene, water treatment, materials protection and personal care segments are expected to be the key growth sectors  for the combined business. The combined business will also have a broad line-up of regulatory approved microbial control active ingredients, which will allow Lonza to bring to market new innovative microbial control formulations and thereby grow revenues across the portfolio.

“The acquisition of Arch Chemicals is the next logical step in Lonza’s life science focused strategy,” continued Stefan Borgas. “It will allow us to expand our non-pharma life science business to achieve a well-balanced profile based upon two world leading growth businesses - pharmaceutical contract manufacturing and microbial control. The acquisition of Arch Chemicals will further strengthen our  position in the attractive microbial control market. I am confident that this acquisition will create substantial value for our customers and thus for our employees and shareholders.”

Microbial Control – a global growth opportunity: the global microbial control market is currently valued at approximately US$ 10 billion, and is growing at approximately 4-6% per annum. The key end-use segments of the market -- water treatment, hygiene, materials protection and personal care -- are growing at faster rates. The largest markets are  North America, Europe and Japan. The fastest growing microbial control markets are Brazil, India, China and South Africa.

Strategic rationale - providing complementary microbial control solutions Arch Chemicals is one of the leading companies in the microbial control market with 23 primary manufacturing and research facilities around the world. Arch Chemicals currently employs approximately 3,000 people and is  headquartered in Norwalk, Connecticut (USA). In 2010, Arch Chemicals had sales of approximately USD 1.4 billion, of which approximately USD 1.2 billion were from microbial control products.

Arch Chemicals’ and Lonza’s microbial control business models are highly complementary. Each business produces  chemical active ingredients that, when registered, are sold either as ingredients or as formulations  for microbial control applications. The active ingredients and formulations produced by Arch Chemicals and Lonza are used to selectively destroy and control the growth of harmful microbes. The combined resources of both companies will provide customers with better product solutions and services.

Given the complementary geographical footprint of both companies, this acquisition will also strengthen Lonza’s position in the high-growth economies of China, India, Brazil and South Africa. In these countries, increasing regulation is expected to lead to greater use of already approved active ingredients and formulations, a trend that is expected to result in further industry consolidation.

The acquisition of Arch Chemicals is expected to be value creating for Lonza. Combining Arch Chemicals with Lonza’s microbial control business will lead to substantial synergies in the administrative areas. Lonza is targeting at least US$ 50 million in savings by year two following completion of the transaction.

In addition, Lonza expects to generate increased sales of US$ 40 million by year three following completion of the transaction by  leveraging the technical capabilities, applications expertise and extended reach of the two businesses. Additional growth synergy will be developed based on increased investments into R&D once the businesses have been integrated. Lonza anticipates that the transaction will result in one-time integration costs of US$ 85 million over the next two years.

“This important strategic acquisition will create value for shareholders. It is in line with our stated financial criteria, as it is expected to be EPS accretive in year one and EVA positive in year two taking in account integration costs,” said Toralf Haag, CFO of Lonza. “Our cash tender offer will be fully debt-financed with bridge loans which will be refinanced by a combination of capital market instruments  and loans, thereby maintaining our target balance sheet structure. We also expect this acquisition to increase Lonza's free cash flow generation, improve RONOA by over 150 basis points in year two and improve our natural currency hedge.”

Under the terms of the merger agreement, Lonza has agreed to commence a cash tender offer to acquire all of Arch Chemicals’  outstanding shares of common stock at an offer price of US$ 47.20 per share. The closing of the tender offer, which is expected to occur later in 2011, is subject to customary terms and conditions, including the tender of more than two-thirds of Arch Chemicals’ outstanding shares of common stock, the expiration or termination of the Hart-Scott-Rodino Antitrust Improvements Act waiting period and the consent of European-based antitrust regulatory authorities.

The definitive merger agreement provides for the parties to effect a merger following the completion of the tender offer, which will result in all shares not tendered in the tender offer being converted  into the right to receive US$ 47.20 per share in cash. In connection with the pending acquisition of Arch Chemicals by Lonza, the Arch Board of Directors has suspended the company’s dividend, effective immediately.

JP Morgan and Morgan Stanley act as financial advisers for Lonza and Arch Chemicals, respectively. Jenner & Block LLP is providing legal counsel in connection with the transaction to Lonza, and Cravath Swaine & Moore LLP is providing legal counsel to Arch Chemicals.

Lonza is one of the world's leading suppliers to the pharmaceutical, healthcare and life science industries. Products and services span its customers’ needs from research to final product manufacture. It is the global leader in the production and support of active pharmaceutical ingredients both chemically as well as biotechnologically.

Arch Chemicals, Inc. is a global Biocides company with annual sales of over US$ 1 billion. Arch and its subsidiaries provide innovative, chemistry-based and related solutions to destroy or to selectively inhibit the growth of harmful micro-organisms.