Solvay plans split into specialty and commodity firms

A year ago, Solvay revealed a plan to exit the soda ash business on which it was founded in 1863. But this week the Belgian company announced an even more radical idea: splitting itself into two independent publicly traded companies.

One, temporarily nicknamed EssentialCo, would include the soda ash business as well as the firm’s peroxides, silica, and Latin American solvents businesses. These mostly commodity operations generated sales last year of about $4.5 billion.

The other firm, dubbed SpecialtyCo, would house Solvay’s faster growing and more profitable businesses, including specialty polymers, aerospace composites, consumer product ingredients, and aroma chemicals. These businesses posted sales last year of about $6.6 billion.

Solvay CEO Ilham Kadri told investors on a conference call that the separation plan is the logical next step after the growth strategy she announced in 2019, soon after joining Solvay. She said the two groups of businesses have distinct markets and needs for capital allocation.

They also have different carbon footprints. In her presentation, Kadri noted that SpecialtyCo is on track to reach carbon neutrality by 2040, while EssentialCo, in part because of the energy-intensive soda ash business, won’t be carbon neutral until 2050.

Solvay isn’t the first company to cite environmental footprint as a reason to modify its portfolio. In November, Trinseo listed carbon intensity part of the rationale for its decision to seek a buyer for its polystyrene business.

Chris Counihan, a stock analyst who follows Solvay for the investment firm Jefferies Group, wrote in a note to clients that the split proposal is a sign that Solvay’s original plan to sell the soda ash business was unsuccessful. But on the call, Kadri said that the company hadn’t begun discussions with potential buyers and that the steps the firm has already taken to separate soda ash will expedite the creation of EssentialCo.

On the call, analysts questioned why Solvay is combining seemingly disparate businesses like aerospace composites and consumer product ingredients into one firm. Kadri acknowledged that the businesses are different, but she argued that they are all specialty operations driven by innovation and requiring high levels of investment.

“They will share the same operating models,” she said.