Solvay SA's recently announced bid for Rhodia SA will create a specialty chemicals company with more than $8 billion of plastics-related sales but industry watchers said there's not much overlap between the two firm's offerings, both globally and in North America.
Analysts also said that it's likely the deal, announced April 4 and valued at almost $5 billion, will allow Solvay to resume production of Rhodia's nylon compounds in North America.
The combined firm would have annual sales of more than $17 billion. In 2010, Brussels-based Solvay generated about 55 percent of its sales from plastics, including PVC and high-end resins such as fluoropolymers, polysulfones, liquid crystal polymers and polyetheretherketone. At Paris-based Rhodia, about 40 percent of 2010 sales came from polyamides, the largest of the firm's six operating units.
Market analyst J.N. Swamy said Solvay and Rhodia participated in similar end markets, but with different materials. He believes the deal was motivated more by specialty chemical products than by plastics.
The deal likely was motivated by Solvay's need to use the cash it generated by selling its pharmaceuticals unit to Abbott Labs for almost $8 billion in 2009, said Swamy of Chemical Market Resources Inc. in Houston.
Other than making an acquisition, the only other thing [Solvay] could have done is buy back shares, and there's only so much of that you can do, he said.
Paul Blanchard, a senior consultant with Houston-based Chemical Market Associates Inc., agreed that there's little overlap in the firms' polymer businesses, aside from niche areas like Rhodia's production, through a joint venture with Invista, of a nylon intermediate that's used in products like Solvay's Amodel-brand polyphthalamide. He added that Solvay may benefit from Rhodia's strong position in Asian markets.
Swamy and Bill Ridenour, president of Polymer Transaction Advisors Inc. in Newbury, Ohio, each said that Rhodia's nylon product mix falls in between Solvay's commodity PVC and more exclusive specialty resins.
It looks like Solvay is trying to broaden its product portfolio, Ridenour said. And Rhodia's growth might have been blunted because of slow nylon growth in the automotive business.
Restarting North American production of Rhodia's Technyl-brand nylon compounds also might make sense, since the region's auto market is rebounding and Solvay operates specialty plastic production sites in Ohio, South Carolina, Georgia and Mississippi.
Rhodia had done its own nylon compounding at a plant in Mississauga, Ontario, but stopped production of those products there in 2009, when the auto market was in a severe decline. Since then, Rhodia's nylon compounds for North American customers have been made by toll compounder Alloy Polymers Inc., which operates plants in Virginia, Ohio and Texas.
Swany said there's a very high probability of Solvay adding nylon compounding to one of its locations, while Ridenour said such a move is inevitable.
A Solvay spokesman in North America would not comment on the deal, which still must be approved by regulators in Europe.
Rhodia's North America spokesman David Kluscik said it's premature to speculate on any specific businesses involved in the deal. We see a complementary mix of businesses in what Rhodia and Solvay do today in various markets, including automotive, construction, energy and water treatment, Kluscik said April 14 by phone.
Both Solvay and Rhodia posted strong financial gains last year, bouncing back from a grim 2009. Rhodia's overall sales were up almost 30 percent, with its nylon-related sales growing 45 percent. The firm also logged a profit of more than $350 million after losing almost $200 million in 2009.
At Solvay, sales fell 16 percent, but profit more than tripled to over $2.5 billion. Those numbers were greatly affected by the pharmaceutical sale. Solvay's bid for Rhodia represents a premium of about 50 percent vs. Rhodia's per-share stock price before the deal was announced. Based on enterprise value, the price is more than seven times Rhodia's 2010 earnings before interest, taxes, debt and amorization.
In executive ranks, Solvay CEO Christian Jourquin will retain that role with the combined firm. Rhodia Chairman and CEO Jean-Pierre Clamadieu will serve as deputy CEO and is expected to succeed Jourquin when he retires.