(Reuters) - Industrial gas producer Air Products and Chemicals Inc (APD.N) is in advanced talks to sell its performance materials operations to Germany’s Evonik Industries AG (EVKn.DE), a source familiar with the matter told Reuters.
The business, which makes chemicals used in sun lotion and paint, could be valued at more than $3.5 billion, according to the source.
Evonik has been on the lookout for larger acquisitions but has so far failed to clinch a deal that could bolster its growth and make it less dependent on its animal feed business.
Air Products and Chemicals Inc, based in Pennsylvania, said last year that it planned to spin off its materials technologies business into a publicly traded company.
According to German weekly Wirtschaftswoche, the group is also interested in the speciality chemicals business of Akzo Nobel (AKZO.AS), a division with annual sales of 1.19 billion euros ($1.35 billion).
The magazine said that Evonik aimed to strike a deal by its annual shareholders’ meeting on May 18.
“Evonik is looking for less cyclical, asset light chemistry targets and Versum Performance Materials would fit this picture,” UBS analyst Patrick Rafaisz said in a note.
He said he believed that Evonik could finance a deal with Air Products without tapping equity markets, considering its net cash position of 947 million euros and annual earnings before interest, tax, depreciation and amortization (EBITDA) of more than 2 billion euros.
A separate source told Reuters on Thursday that Evonik was interested in Air Products’ business but that no decision had been made yet whether to pursue a deal.
Air Products said its material technologies business had sales of $2.087 billion in 2015, out of group total of $9.895 billion.
Evonik declined to comment on the matter, while Air Products and Chemicals was not immediately available outside regular U.S. business hours. A spokesman for Akzo Nobel said all three of its business areas, Decorative Paints, Performance Coatings & Specialty Chemicals, were “equally dear” to the Dutch group at the moment.
Shares in Evonik rose 2 percent to 27.19 euros by 1553 GMT, outperforming a 0.7 percent decline by the German mid-cap index .MDAXI.
Reporting by Parikshit Mishra in Bengaluru and Matthias Inverardi in Duesseldorf; Additional reporting by Toby Sterling; Writing by Maria Sheahan; Editing by Keith Weir and Elaine Hardcastle