Analysis: BP's buy of Solvay PP business takes it to No 2

19 December 2000 17:10  [Source: ICIS news]

LONDON (CNI)--BP's purchase of Solvay's polypropylene (PP) assets will make the Anglo-American oil and chemicals giant the world's second largest PP producer, overtaking TotalFinaElf.

The two companies announced plans on Tuesday to strengthen their polyolefins positions through a major restructuring deal which involves Solvay transferring its PP business to BP and the two companies combining their high density polyethylene (hdPE) activities. In addition, Solvay will buy BP's engineering polymers business.

BP said the transaction, which is expected to be completed in mid-2001, involves businesses with a combined turnover of $2.6bn (Euro2.9bn). It declined to reveal further financial details, although the value of the assets involved in the transaction is believed to be about $2.5bn, split almost equally between BP and Solvay. Under the agreement, BP is understood to make a relatively small equalising payment to Solvay.

The Anglo-American oil and chemicals group said the addition of Solvay's 800 000 tonne of annual PP production will make it the world's second largest PP producer with some 3.1m tonne of annual production. It is currently number three, behind TotalFinaElf in second place and Basell in first.

A BP spokesman said BP has no current plans to reduce its PP output. Basell and Borealis both disclosed plans today to cut back PP production temporarily due to weak profitability.

Belgium-based Solvay and BP will form two hdPE joint ventures: a 50:50 venture which will combine the companies' European hdPE activities; and a 51:49 venture for Solvay's current hdPE activities in the US. A BP spokesman said the two Solvay/BP joint ventures will be among the top four hdPE producers globally with a total capacity of 2.2m tonne/year.

Byron Grote, chief executive of BP's chemicals business said the agreement with Solvay is an important step in the repositioning of BP's petrochemicals portfolio.

"It creates an industry-leading joint venture in hdPE in Europe, gives BP an equity position in the US hdPE market to support the growth of our olefins business, and accesses significant efficiencies from merging Solvay's PP assets into our own," he said.

Grote added that the disposal of the engineering polymers business, which BP put up for sale earlier this year, is consistent with the group's plans to focus on "a limited set of distinctive global positions".

Solvay's chief executive officer Alois Michielsen said Solvay is selling its PP business because, due to the ongoing consolidation in the sector, it is finding it increasingly difficult to compete effectively. "Exiting this business would contribute to our focus on existing global competitive leaderships," he said.

The acquisition of BP's engineering polymers business will give Solvay a leading position in the high-growth engineering polymers industry, he added.

By: Anna Jagger
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