Solvay Buys Rhodia in $4.8 Billion Specialty Chemicals Move
April 04, 2011, 3:42 AM EDTBy Francois de Beaupuy and Sheenagh Matthews
(Adds share prices in sixth paragraph.)
April 4 (Bloomberg) -- Solvay SA, the Belgian soda ash maker which sold a drugs unit a year ago, agreed to buy Rhodia SA of France for 3.4 billion-euro ($4.8 billion) in cash to add specialty chemicals spanning ingredients for moisturizers and car-part polymers.
Shareholders of the Paris-based company will receive 31.6 euros a share, 50 percent more than Rhodia’s closing price on April 1, Solvay said in a statement today. Including debt, the deal has an enterprise value of 6.6 billion euros.
Solvay, which exited pharmaceuticals in a 5.2 billion-euro deal, moved on Rhodia after being outbid by DuPont Co. for food- ingredient maker Danisco A/S this year. Chief Executive Officer Christian Jourquin, 62, seeks to diversify Solvay away from the commoditized markets of caustic soda, soda ash and PVC. The addition of Rhodia will create a company with 12 billion euros in revenue, 40 percent generated in emerging markets.
“This is probably the only correct thing they could have done as in the European space this is one of the few targets that is worthwhile at a nice multiple,” said Jan Hein de Vroe, an analyst at ING Group NV in Amsterdam, with a “hold” rating on Solvay. “Together they have nice emerging markets exposure and a more balanced portfolio.”
Solvay is paying 7.3 times recurring earnings before interest, taxes, depreciation and amortization. That’s in line with the average multiple for specialty chemical acquisitions, according to data compiled by Bloomberg. The company sees the possibility of doubling its earnings to almost 2 billion euros.
Rhodia climbed 50 percent to 31.49 euros as of 9:29 a.m. in Paris trading. Solvay added 3.5 percent to 86.79 euros.
Diversification
The family-owned Belgian company, based in Brussels, expects to close the Rhodia purchase by late August and brings Rhodia’s leadership positions in rare earths used in auto catalysts and high-performance silica for car tires, as well as the French company’s products for consumer markets such as surfactants, and engineering plastics based on polyamide.
Industry leaders such as BASF SE, which paid $3.8 billion for cosmetics ingredient-maker Cognis in December, are diversifying into specialty chemicals that are more resilient to economic swings than plastics such as styrene, used in television sets. Warren Buffett’s Berkshire Hathaway Corp. is buying additive maker Lubrizol Corp. for about $9 billion in another sign that mergers are gathering pace in the chemicals industry.
Cultural Fit
Rhodia CEO Jean-Pierre Clamadieu, who became Rhodia’s CEO in 2003, cut jobs, closed plants and sold businesses to reduce costs to avoid bankruptcy following years of losses in the first part of the last decade.
Jourquin said in an interview with Bloomberg’s Mark Barton that he made a thorough search for targets before opting to buy Rhodia as both companies have a similar culture, making the job of integrating businesses easier.
Jourquin outlined cost savings of 250 million euros, mostly “external synergies,” such as the reduction of purchases costs, within three years. He also sees reduction in internal costs over time, though jobcuts are a small part of the total.
The company will almost double its workforce to about 30,800. Solvay said Rhodia’s board supports the transaction, and the company needs backing from shareholders representing at least 50 percent plus one share. Jourquin, 62, will hand the reins to Clamadieu, 52, when he retires, the companies said.
“We have a conservative financial policy,” Jourquin said on a conference call. “There is no need to consider other acquisitions in the short term. This for me is a first step in a growth policy.”
BNP Paribas and Credit Suisse advised Rhodia on the deal. Morgan Stanley advised Solvay.
--Editors: Andrew Noel, Benedikt Kammel
To contact the reporters on this story: Sheenagh Matthews at smatthews6@bloomberg.net; Francois de Beaupuy in Paris at fdebeaupuy@bloomberg.net.
To contact the editor responsible for this story: Benedikt Kammel at bkammel@bloomberg.net;
