07 May 2013 09:22 [Source: ICIS news]
SINGAPORE (ICIS)--Solvay and INEOS have signed a letter of intent to combine their chlorvinyls businesses into a 50:50 joint venture, forming one of the world’s largest polyvinyl chloride (PVC) producers, the Switzerland and Belgium-based chemical producers said on Tuesday.
"The newly combined business, which will be of world scale, will be able to better respond to rapidly changing European markets and to match increasing competition from global producers,” said INEOS chairman Jim Ratcliffe.
The merged business would have combined net sales of €4.3bn ($5.7bn) and recurring earnings before interest, taxes, depreciation and amortisation (REBITDA) of €257m, based on figures in 2012.
It would also have 5,650 employees, and pool the company's operations across the chlorvinyls chain, including PVC, chlorine, and caustic soda.
Solvay is to provide its vinyl activities – which are part of Solvin, a joint venture between Solvay, which holds 75% stake, and BASF, which holds 25% – and its Chlor Chemicals business, which is spread across seven production sites in Europe.
INEOS subsidiary Kerling, Europe’s largest PVC producer, is to contribute its chlorvinyls business to the joint venture, operating out of 10 sites in seven European countries. RusVinyl, Solvay’s chlorvinyls joint venture with Russian chemical company Sibur, is not included in the transaction.
Until the transaction is closed, Solvay and INEOS will continue to run their chlorvinyls businesses separately, the companies said. The transaction is subject to anti-trust approvals, and a timeline for the completion of the deal was not disclosed.
The letter of intent signed by both companies includes an exit clause where INEOS would acquire Solvay’s 50% stake in the venture for five and a half times its mid-cycle REBITDA.
The option, which would have to be exercised between four and six years from the formation of the venture, would leave INEOS as the sole owner of the business. Solvay would be entitled to cash payments of €250m upon completion of the transaction.
Solvay CEO Jean-Pierre Clamadieu said: “The joint venture will improve the competitiveness of its operations in a very challenging environment regarding feedstock and energy costs in Europe.”
“Furthermore, this transaction would substantially change our portfolio of activities and allow us to accelerate Solvay's transformation into a chemical group focused on growth and high-margin businesses," he added.
Kerling had its credit rating downgraded from B3 to Caa1 by Moody’s in December last year, which the agency attributed to overcapacity in the European PVC market, and limited scope for recovery in the crucial construction end-market. The company’s difficulties in passing on ethylene price increases was also a factor in the downgrade, Moody’s said.
($1 = €0.76)
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