Europe's polymer industry has taken a firm new step on the road to consolidation as the region's top PVC producer, EVC International NV, plans to merge with the petrochemicals division of Norsk Hydro ASA.
The deal, if concluded, will create the world's third-biggest PVC resin producer, with a capacity of almost 4 billion pounds per year, behind Formosa Plastics Corp. of Taipei, Taiwan, and Shin-Etsu Chemical Ltd. of Tokyo.
Under a nonbinding letter of intent signed by the parties, EVC of Amsterdam, the Netherlands, will issue new shares to Norsk Hydro of Oslo, Norway, in exchange for the assets of the Norwegian company's petrochemical division.
In what the parties term a ``merger of equals,'' Norsk Hydro, which already holds a 50 percent share of Europe's leading polyolefin producer, Borealis AB, will have a 45 percent stake in the new PVC company.
EVC Chairman Ettore dell'Isola will be its chief executive, while two members from each firm will sit on the new group's management board. The merged company will be named prior to the deal's closure and be in operation by the end of this year.
EVC, with 1997 sales of 2.4 billion Dutch guilders ($1.18 billion), has an annual capacity of 2.87 billion pounds of PVC resin, or 22 percent of Western Europe's total capacity.
Norsk Hydro Petrochemicals, part of Norway's largest industrial company, is Europe's sixth-biggest PVC producer, with a resin capacity totaling 1.13 billion pounds. Its 1997 sales stood at $788 million.
Both partners have sought to restructure the European vinyl industry, which is fragmented among 15 separate suppliers.
The two companies expect the merger to achieve annual savings of around $39 million over the next three years. The firms did not announce any planned plant closings.
EVC said the agreement does not include Norsk Hydro's 51 percent interest in the ethylene cracker at Rafnes, Norway. The companies will carry out a study of future ethylene needs of the merged company, which will clarify its relationship with the cracker holding.
The companies expect the deal to lead to expansion by the new firm in Asia, where each partner already has a foothold. EVC has a PVC film and sheet extrusion firm in India and feels Asia's economic crisis may offer bargain acquisitions there. Norsk Hydro has a plant in Singapore and other investments in China, India, Malaysia and Qatar.
Norsk Hydro President and CEO Egil Myklebust commented: ``We consider the proposed merger as an important move in this necessary process, creating a strong entity with a good platform for future growth.''
Norsk Hydro Petrochemicals operates plants in Norway, Sweden and the United Kingdom. The division also produces about 375 million pounds of PVC compounds annually, as well as vinyl chloride monomer, chlorine and ethylene. It employs about 3,000 people.
EVC formed in 1986 as a joint venture of London's ICI plc and Enichem of Italy. The venture became a publicly traded company in 1994, with each partner retaining 16.5 percent.
Today EVC employs 4,000 and has European production sites in Germany, Italy, Spain and Switzerland.
The vertically integrated company also makes vinyl chloride monomer, PVC compounds and rigid PVC films. It uses about 20 percent of its PVC output in downstream production.
In February, EVC acquired the PVC assets of east German company Buna Sow Leuna Olefinverbund GmbH from Dow Chemical Co. of Midland, Mich.