Issue Date: April 11, 2011
Solvay To Buy France’s Rhodia
Belgian chemical maker Solvay has made a cash tender offer to buy France’s Rhodia for $4.8 billion, a move that will accelerate Solvay’s expansion into fast-growing developing markets and nearly double its global sales.
The acquisition of Rhodia will create “a major global chemicals platform under the banner of Solvay,” CEO Christian Jourquin says.
In addition, the deal will allow Solvay to deploy cash it has been sitting on since selling its pharmaceuticals business to Abbott Laboratories for $7.6 billion more than a year ago. Coming on the heels of Clariant’s February agreement to buy Süd-Chemie for $2.6 billion (C&EN, Feb. 21, page 10), the purchase will continue consolidation in the European chemical industry.
Rhodia’s board of directors has approved the combination, which would have ranked Solvay as the world’s 17th-largest chemical company in C&EN’s most recent Global Top 50 survey. The new firm will have $17 billion in annual sales, 40% of which will come from emerging markets, thanks to Rhodia’s strong presence in Brazil and China. Rhodia’s stockholders will get a premium of 44% above the average closing price of their shares over the past 90 days. The two firms expect the transaction to be complete by the end of August, pending government approvals.
Postmerger plans call for Rhodia CEO Jean-Pierre Clamadieu to become deputy CEO and then to head the company when Jourquin retires.
The firms boast that more than 90% of combined sales will come from businesses where they are among the global top three suppliers. These businesses include soda ash, vinyl plastics, and fluoropolymers on Solvay’s side, and nylon 6,6 polymers, rare earths, and specialty surfactants on the Rhodia side.
The two firms expect to realize annual cost savings of $350 million within three years of the merger’s completion, without significant job losses. No major downsizing related to the combination is planned, they add.
The sale to Solvay is a major vindication for Rhodia, which flirted with bankruptcy soon after Clamadieu took over as CEO in 2003. Since then, the firm, which spun off from Rhône-Poulenc in 1997, has sold businesses in pharmaceutical chemicals, latex polymers, industrial phosphates, and silicones to reduce debt to more manageable levels.
For Solvay, the purchase of Rhodia means putting the cash it obtained in the drug business sale to good use. According to market reports, Solvay made a bid for industrial enzymes maker Danisco earlier this year. But DuPont reached an agreement to buy Danisco for $6.3 billion. Most analysts see Solvay’s deal with Rhodia as a better fit.
Still, Solvay is on review for a possible downgrade on its debt by Moody’s Investors Service, a credit rating service. The merger means Solvay will take on at least an additional $1.4 billion in debt from Rhodia, Moody’s points out.
The deal is positive for Solvay because it makes the firm less cyclical and helps shift it way from construction markets and toward consumer markets, says Mark van der Geest, a senior chemical analyst with the investment bank ABN Amro.
However, van der Geest calls the premium Solvay is paying for Rhodia’s shares “a bit much.” And he adds that the anticipated $350 million in cost savings “looks too optimistic.”
The cost savings is achievable, despite the “limited overlap” between the two firms’ businesses, argues Andreas Heine, head of European chemicals research for UniCredit Bank. What’s more, he adds, the high value Solvay has placed on Rhodia’s shares is likely to improve investors’ valuation of remaining European chemical majors such as Clariant, Lanxess, and Arkema.
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