KLK: Tighter Grip on Nitrile Latex Market

If you want to know of the latest corporate incursion of KL Kepong, you have to read Ooi Tee Ching's online article.in the Business times today.(16 December 2010)

Here is his article.

Kuala Lumpur Kepong's 19 per cent owned Yule Catto has bought PolymerLatex for RM1.85 billion

Kuala Lumpur Kepong Bhd (KLK) , which owns 19 per cent of Yule Catto & Co plc, is set to tighten its grip on the world’s supply of nitrile latex following the British firm’s 443 million pounds (RM1.85 billion) purchase of Germany’s PolymerLatex Group.

Chemical maker Yule Catto, listed on the London Stock Exchange, is already the owner of the Synthomer Group’s polymers business.

The PolymerLatex acquisition will bring together the world’s two biggest suppliers of butadiene or nitrile latex with a combined turnover of more than 1.2 billion pound and more than 2,000 employees.

Synthomer’s unit in Malaysia runs a 130,000-tonne per year nitrile plant in Kluang, Johor.

On the other hand, PolymerLatex operates a 100,000-tonne a year nitrile latex plant in Pasir Gudang, Johor.

Nitrile latex is used mainly to make synthetic rubber gloves.

KLK executive director Datuk Lee Hau Hian said the purchase will strengthen Yule Catto’s core business.

“It will allow Yule Catto to achieve cost synergy in research and product development,” Lee told Business Times yesterday.

Asked if a bigger sized Yule Catto could lead to price-fixing of nitrile latex, Lee said: “No, it will not because it takes two to make a deal. Both Yule Catto and nitrile glove makers must be happy in order for the industry to grow”.

Hartalega Holdings Bhd managing director Kuan Kam Hon said Yule Catto’s acquisition is a good thing for the former.

“I don’t think there’ll be any issue of price-fixing because there is no monopoly. The market is becoming bigger and we see new players from South Korea and Taiwan,” he said when contacted yesterday.

“When we source for nitrile latex, it’s not a decision based solely on price. Technical support is very important,” Kuan added.

Hartalega is the world’s largest nitrile glovemaker and is the biggest consumer of nitrile latex in Malaysia.

Yule Catto is issuing rights shares to fund the PolymerLatex purchase. Its investors are offered four new shares for each three they currently own at 116 pence.

KLK, in a filing to Bursa Malaysia on Tuesday, said it will take up all its rights.

This means the company will pay RM209.8 million for its portion.

Yule Catto chief executive Andrew Whitfield reportedly said the enlarged group could compete more effectively in a consolidating emulsion polymer market.

He expected the deal to allow it to achieve STG20 million (RM98.8 million) in cost savings.

So, if you are watching how KLK is performing in the medium term, this nitrile investment could be a net contributor of strategic significance.