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Lanxess Bets on CEO Marathon Stamina to Find Right Track

Lanxess AG (LXS)’s incoming chief executive officer, Matthias Zachert, has a “hardcore” approach to getting staff to sign up for running events — cajoling them at lunch breaks or in meetings, says Rando Bruns, treasurer at Zachert’s current employer Merck KGaA.

Zachert, 46 years old and an avid runner, may need some of the stamina he uses to finish half marathons when he starts tomorrow at Cologne, Germany-based Lanxess.

The company, the world’s largest maker of synthetic rubber, in February posted its first annual loss since the company’s spinoff in 2005, cut its dividend in half and was the second-worst performer on Germany’s benchmark index last year. At stake for Zachert, who was finance chief at Lanxess for seven years until 2011, will be tackling a portfolio heavily geared toward the auto and tire industries after European car sales fell to a 20-year low last year.

“Zachert desperately needs to wave a magic wand,” said MM Warburg analyst Oliver Schwarz, who has a hold rating on the company’s shares. “He could cut the Gordian knot by selling part of the company for an attractive price, preferably a bit that has lower margins.”

Lanxess’ board decided to replace former CEO Axel Heitmann after the company failed to close on acquisition opportunities to reduce its reliance on the auto and tire industries, a person familiar with the matter said when Zachert’s appointment was announced on Jan. 26. The company also expanded in synthetic rubber with acquisitions in Asia after that business began struggling from price competition.

Youngest CEO

Zachert, who will be the youngest CEO running a company in Germany’s DAX index, got advance praise from investors. The announcement in January on his return after a three-year stint as CFO at drugmaker Merck moved the market values of both companies, with Lanxess rising 9 percent and Merck falling 11 percent at the open of trading. Lanxess lost 27 percent in 2013. Zachert declined to be interviewed about his strategy and potential portfolio changes at Lanxess.

The executive has the qualities to revive Lanxess, said Deutsche Post AG CFO Larry Rosen, who has known Zachert since the 1990s when they worked together at chemical company Hoechst AG.

“If I had to go into trench warfare, Matthias would be one of the first guys I would pick to be on my side,” said Rosen, who sometimes sees Zachert on the weekend and shares his love of wine. “It’s because of his determined, self-starting, never-giving-up, goal-oriented, hard-working mind set.”

Extra Capacity

Zachert could solve several problems at once if he sold the Keltan business, which makes ethylene propylene diene monomer, or EPDM, a synthetic rubber used in car-door sealants and wind-screen wipers, according to MM Warburg’s Schwarz.

Lanxess’s net loss of 159 million euros for 2013 was triggered by an impairment charge at the Keltan unit. The business won’t generate the cash previously expected because too much extra capacity for EPDM is being built, Lanxess CFO Bernhard Duettmann said in February. The company itself is exacerbating the problem by building a 235 million-euro factory in Changzhou, China.

While selling Keltan would be a radical step, a sale at an attractive price would give Lanxess financial flexibility, cut expenditures and may even result in a book gain, Schwarz said.

Zachert, who did an apprenticeship at carmaker Mercedes-Benz in Stuttgart after graduating from school and then studied business administration, hasn’t yet commented on potential portfolio changes, though he said that a tight grip on Lanxess’s spending will be one of his first priorities.

Abandoned Discipline

“Cash discipline was basically abandoned,” Zachert said on the sidelines of a Merck press conference this month. “Despite high profitability, there was practically no cash generation anymore because everything was expensed or capexed.”

Zachert, who is married with three children, doesn’t play by the old-boy network rules of “you help me if I help you,” said Ulrich Koemm, a former Lanxess board member who worked with him from 2004 to 2007.

“In executive discussions, Matthias argued with facts,” Koemm said in an interview. “When he was overruled he was very loyal, at least to the outside world. Internally, there was a lot of conflict.”

Zachert was a very exacting manager at Hoechst and its successor companies, where he worked from 1996 to 2002, and helped merge pharmaceutical businesses that were to become Hoechst Marion Roussel and then Aventis, said Daniel Camus, former CFO of the merged company and his boss at the time.

Power of Persuasion

“He has an extremely high level of integrity,” Camus, who went on to become CFO of Electricite de France SA, said in an interview. “It’s something that I have rarely seen but he also translates that into the level of expectation and demands he has towards people working with him.”

Zachert’s power of persuasion certainly succeeded at his half-marathon recruiting missions in corporate canteens.

“When you go with him to the canteen, you can be sure that within a radius of a few meters everyone has been spoken to and asked if they would like to take part,” Merck’s Bruns said. “Some are hesitant and there is some wrangling. It’s hardcore.”

During his time as Lanxess CFO, the company’s participation in the local half-marathon in the city of Leverkusen jumped sixfold to more than 600 employees the year he started recruiting in earnest, according to the company. Participant numbers also rose at Merck after he joined.

Bruns plans to continue running even after Zachert’s departure. He’s even drumming up support for a Merck team to run in Lanxess’s Leverkusen race on June 15.

“Zachert always challenges us so we are turning it around and are challenging him,” Bruns said.

Source: Bloomberg

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