Cologne, Germany-based specialty chemicals company LANXESS and Saudi Aramco subsidiary Aramco Overseas Company announced their plan to establish a joint venture for synthetic rubber, with each holding a 50% interest in the joint venture.

The joint venture will have annual sales of approximately EUR 3 billion (USD 3.34 billion). Saudi Aramco will pay approximately EUR 1.2 billion (USD 1.34 billion) in cash for its 50% share after deducting debt and other financial liabilities. The total joint venture is valued at EUR 2.75 billion (USD 3.06 billion).

The transaction still requires the approval of the relevant anti-trust authorities and is expected to be completed in the first half of 2016.

LANXESS will contribute its synthetic rubber business to the new joint venture. This will include the Tire & Specialty Rubbers (TSR) and the High Performance Elastomers (HPE) business units, their 20 production facilities in nine countries and some 3,700 employees and additional support staff.

The high-performance rubbers manufactured by LANXESS are mainly used in the production of tires and technical applications such as hoses, belts and seals. The main customers include the automotive and tire industries, but the products are also used in the construction industry and by oil and gas companies.

Saudi Aramco will provide the joint venture with competitive and reliable access to strategic raw materials over the medium term.

The joint venture brings together the world’s largest producer of synthetic rubber and the world’s largest oil and energy producer.

“This alliance will enable us to give the rubber business a very strong competitive position and the best possible future perspectives,” said LANXESS CEO Matthias Zachert. “Together in the future we can produce synthetic rubber in an integrated value chain from the oil field to the end product, thus establishing one of the best positioned suppliers in the world market.”

“Through the joint venture agreement we are investing in a world-class synthetic rubber and elastomer products capability that already supplies many of the world’s largest tire and automotive-parts manufacturing customers. In addition to creating a new revenue stream for Saudi Aramco, the agreement will spur economic growth and diversification opportunities for the Kingdom of Saudi Arabia and the Middle East region in high-volume sectors, such as tire and auto-parts manufacturing, that are dependent on higher margin, value-added chemicals products,” said Abdulrahman Al-Wuhaib, Saudi Aramco’s senior vice president downstream.

The new joint venture will be managed by a holding company headquartered in the Netherlands. The CEO will be appointed by LANXESS and the CFO will be appointed by Aramco Overseas Company. Each company will have equal representation in the joint venture’s board of directors.

LANXESS plans to use around EUR 400 million (USD 445.78 million) of the proceeds from the transaction to invest in the growth of well-positioned and less cyclical segments Advanced Intermediates and Performance Chemicals. Another roughly EUR 400 million (USD 445.78 million) is earmarked for debt repayment and EUR 200 million (USD 222.89 million) will be used in a share buyback program.