FocusSolvay-Rhodia sets stage for more M&A - analysts

04 April 2011 18:57  [Source: ICIS news]

A statue of Ernest SolvayBy Joseph Chang

NEW YORK (ICIS)--Belgium-based Solvay’s proposed acquisition of France’s Rhodia for €3.4bn ($4.9bn) sets the stage for more chemical mergers and acquisitions (M&A), analysts said on Monday.

“Cash balances at chemical companies seem quite high with reduced debt levels. This is the second chemical deal announcement in three weeks - I think the sector is primed for more deals,” said Hassan Ahmed, partner at investment advisory firm Alembic Global Advisors, in an interview with ICIS.

Solvay’s planned acquisition of Rhodia comes after US investment vehicle Berkshire Hathaway announced its $9bn (excluding the assumption of about $700m in debt) acquisition of US-based lubricants and specialty chemicals firm Lubrizol on 14 March.

“The acquisition, when combined with recent industry deals, underscores how active this M&A cycle is. We expect to continue to see consolidation in the chemicals sector with an emphasis on companies with green portfolios,” said Jefferies & Co. analyst Laurence Alexander in a research note.

He noted that 32% of Rhodia’s sales are from products that address sustainable development, including lightweight plastics for the automotive sector, and silica for environmentally-friendly tyres.

Including the assumption of €3.2bn in Rhodia debt, the deal is valued at €6.6bn.

Solvay’s bid values Rhodia at 7.1 times estimated 2011 earnings before interest, tax, depreciation and amortisation (EBITDA) or 6.8 times estimated 2012 EBITDA, based on consensus estimates, noted Alexander.

This compares with specialty chemicals sector public valuation of 7.9 times estimated 2011 EBITDA and 7.2 times estimated 2012 EBITDA, and commodity chemicals sector valuation of 6.8 times estimated 2011 EBITDA and 6.2 times estimated 2012 EBITDA, he added.

This latest proposed acquisition is spurring takeover speculation on a number of other potential targets.

“Celanese has a similar geographic and end market mix as Rhodia, and similar to Rhodia, seems to be trading at a steep discount to peers, making it similarly attractive from an M&A perspective,” said Ahmed.

“This could fit in quite nicely with LyondellBasell and SABIC’s portfolio,” he added.

Netherlands-based LyondellBasell and Saudi Arabia’s SABIC both make automotive plastics, as does Celanese through its Ticona engineering plastics division.

Similar to Celanese, Rhodia generates around 20% of its sales from the automotive end market (11% for Celanese) and around 40% of its sales from emerging markets (39% for Celanese), Ahmed pointed out.

“The main product within Rhodia’s portfolio is engineering plastics based on polyamide or Nylon 6,6 - not too dissimilar from Celanese’s Ticona business - from which the company generates around 40% of its revenues,” the analyst said.

“Another 15% of the company sales come from its Acetow division where it is the number three global producer of acetate tow behind Celanese and Eastman,” he added.

Celanese also trades at a relatively low multiple of 6.9 times Alembic’s estimated 2011 EBITDA, and 5.9 times estimated 2012 EBITDA, based on a price of around $45/share, noted Hassan.

Shares of Celanese jumped $1.28, or 2.9%, to $45.74 in mid-afternoon trading on the New York Stock Exchange.

($1 = €0.70)

Paul Hodges studies key influencers shaping the chemical industry in Chemicals and the Economy

Author: Joe Chang

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