Belgian chemicals and plastics company Solvay S.A. (SOLB.BT)
Monday said it will buy Rhodia S.A. (RHA.FR), in a friendly deal
valuing the French specialty chemicals maker at EUR3.4 billion that
will expand its footprint in fast-growing emerging markets.
Solvay, which in 2009 sold its pharmaceuticals business to
Abbott Laboratories (ABT) for EUR4.5 billion, is offering EUR31.60
a share in cash, representing a premium of 50% on Rhodia's closing
price of EUR21.07 Friday. The deal has been recommended by the
directors of the French company.
The new company will have combined annual revenue of EUR12
billion and will derive 40% of its sales from emerging markets,
helped by Rhodia's current strong presence in Brazil and China.
Speaking during a press conference, Solvay Chief Executive
Christian Jourquin said the combined company will have sufficient
resources to target larger acquisitions in emerging countries.
Rhodia Chief Executive Jean-Pierre Clamadieu said there could be
opportunities for expansion in India, in addition to Brazil and
China, as well as in renewable raw materials.
Clamadieu will become deputy chief executive of Solvay and is
expected to take the helm of the company once Jourquin retires.
Rhodia shares opened 50% higher in Paris, and were trading 48.5%
higher at EUR31.29 at 1427 GMT, outperforming the SBF 120 index and
slightly lower than the offer price, while Solvay was trading 3.33%
higher at EUR86.65 in Brussels.
The deal came as a surprise to some of the Belgian company's
analysts, who didn't seem to be totally convinced by the move.
Analysts said Rhodia will expand Solvay's geographical exposure,
particularly in Asia, one of the most promising markets for the
companies' businesses. It will also reduce the energy footprint and
increase the company's research and development of new
products.
But the new Solvay-Rhodia combination won't reduce Solvay's
exposure to external economic shocks and the company's performance
will continue to shift with the macroeconomic trend.
"Rhodia was not our best guess," wrote Bernard Hanssens, an
analyst at Bank Degroof in Brussels in a note about the deal. "The
reduction of the cyclicality of the earnings seems less obvious,"
he wrote.
Solvay was hard hit by the economic downturn, as its business is
heavily dependent on the construction and the automotive
industries, both of which were affected. However, its
pharmaceutical business had reduced the negative impact, propping
up the company's numbers.
The deal eliminates the uncertainty on the reivestment of the
cash reserve Solvay raised from the sale of its pharmaceuticals
business, since the company had been seeking an acquisition, Bank
Degroof analysts said.
Solvay was rumored to have approached Danish food ingredients
and enzymes company Danisco A/S (DCO.KO) before losing out to U.S.
chemicals group E.I. DuPont de Nemours & Co (DD), as well as
having considered acquiring European chemicals specialists such as
Umicore S.A. (UMI.BT), Symrise AG (SY1.XE) and Arkema (AKE.SA).
But other, less cyclical targets might have been costlier,
according to Wim Hoste, an analyst at KBC Securities in Brussels.
"It's a compromise which I can understand," he said.
A counter-offer for Rhodia could still be possible given that
the stock is very liquid, said analysts at Paris-based brokerage
Oddo, but they noted that they haven't identified any companies
with a balance sheet sufficiently strong to table a bid topping
Solvay's offer.
Still, the news of the Solvay-Rhodia tie-up may fuel speculation
of further consolidation in the sector, particularly in Europe,
they added.
Solvay said the acquisition of Rhodia, due to close in late
August, will be earnings accretive from 2011, with annual cost
synergies of EUR250 million expected within three years, which will
be achieved through the reduction of external costs and without
major downsizing plans.
"We see the possibility of doubling our (earnings) to almost
EUR2 billion and creating a major global chemicals platform under
the banner of Solvay," Solvay CEO Jourquin said in a statement,
referring to rebitda, or recurring earnings before interest and
taxes, depreciation and amortization.
Credit Suisse Group (CS) and BNP Paribas S.A. (BNP.FR) advised
Rhodia.
Based near Paris, Rhodia was the chemicals unit of French
chemical and pharmaceutical concern Rhone-Poulenc until 1998, when
it was spun off from its parent.
It develops specialty chemicals and new technologies for clients
in the automotive, electronics, pharmaceuticals, agrochemicals,
consumer products -- such as hair and skin care, as well as
cigarette filters -- and tire industries, having reported revenues
of EUR5.23 billion and net profit of EUR259 million in 2010.
Solvay, headquartered in Brussels, dates back to 1863, when it
began making soda ash. Since then, it has diversified into
manufacturing chemicals and plastics, having exited the
pharmaceutical business in 2009. It posted sales totaling EUR7.1
billion last year.
-By Elena Berton, Dow Jones Newswires; +33 1 40 17 17 65;
elena.berton@dowjones.com
-Riva Froymovich in Brussels contributed to this article
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