04 April 2011 17:03 [Source: ICIS news]
By Nigel Davis
The agreement to make a €3.4bn ($4.9bn) cash offer for the equity of the Paris-based chemicals and specialties producer makes a great deal of sense. There is a corporate cultural fit too that could see the combined group build much further on the momentum both companies clearly have gained in recent years.
Once Rhodia had been managed out of its 2003/04 financial troubles, the portfolio reorganisation and realignment, particularly towards markets in Asia and other emerging economies such as Brazil, were seen to be paying off.
Solvay’s decision to sell pharmaceuticals - it did so in 2010 to Abbott Laboratories for €5.2bn - gave it the means to acquire complementary, or possibly step-out, markets and technologies.
That Solvay is bidding to secure a good match in chemicals and polymers, and a company that appears to share its passion for technology and sustainability, says a great deal.
A healthy premium has been offered to Rhodia shareholders - 44% above the average closing price of the shares over the past three months - and the bid has been recommended by Rhodia’s management.
The deal is valued at 7.3 times recurring earnings before interest, tax, depreciation and amortisation (REBITDA) or 8.5 times if Rhodia’s earnings from carbon credits are ignored.
And it is noteworthy that Rhodia CEO Jean-Pierre Clamadieu has been named as the successor to Solvay’s Christian Jourquin who retires next year. Rhodia chief operating officer (COO) Gilles Auffret is destined to become Rhodia CEO and a member of the Solvay executive committee.
“We have a shared vision in that we want to create a new group to achieve our goal of sustainable growth and development in chemistry," Jourquin said on Monday.
"We see the possibility of doubling our REBITDA to almost €2bn and creating a major global chemicals platform under the banner of Solvay."
For Rhodia’s shareholders and employees this is probably the opportunity that Clamadieu talks of. “I feel that the similar cultures of the two groups will ensure a successful integration resulting in one strong and ambitious group," he said.
If successful - closing could be as early as the end of August this year - the acquisition will create a company with sales of around €12bn and a number one market position in certain engineering polymers and fluoropolymers, in consumer chemicals, silica and rare earth materials, hydrogen peroxide, soda ash and sodium bicarbonate.
In nylon 6,6 polymers and intermediates the company will have a global number two market position.
Rhodia complements Solvay with its strong presence in consumer goods markets and the automotive sector - Solvay is big in construction. And Rhodia’s expanding businesses in Asia and Latin America are a clear attraction.
Both companies too, are conducting the sort of materials and chemistry-related research that can help the combined group tackle some potentially important sustainability-led market opportunities.
Solvay employs 800 in research and development (R&D) and Rhodia 900. Solvay says that 27% of its sales are derived from products introduced within the past five years. The Rhodia ratio is about 20%.
Solvay could have used some of the cash from the sale of its pharmaceuticals business to make another change of direction but has decided to focus on the types of businesses, and markets, it knows best.
And the financial markets have reacted positively to the attractiveness of the offer and the strategic fit. Rhodia’s share price climbed close to 50% on Monday after the bid was announced. Solvay was up more than 3%.
($1 = €0.70)
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