EU clears BASF’s acquisition of Solvay’s nylon business

Source: ICIS News

2019/01/18

LONDON (ICIS)--The European Commission on Friday cleared BASF's acquisition of Solvay’s nylon assets after the two parties promised a remedy package addressing anti-trust concerns.

The transaction is expected to close in the second half of 2019.

The German chemical major announced its intention to acquire the assets in 2017 for €1.6bn.

However, the EU antitrust authorities had asked the company for divestments to stop it taking a dominant position in the market.

“During the approval process in Europe BASF made commitments to address the competition concerns of the EU Commission,” it said.

“They require divesting parts of the original transaction scope to a third-party buyer, namely manufacturing assets and innovation capabilities of Solvay’s polyamide business in Europe. The divestment process started in Q4 2018.”

In its ruling about the transaction, the European Commission said the two parties – BASF and Solvay – had committed to divest production facilities in three different countries to a “single suitable” buyer.

These would include production facilities Valence in France and Blanes in Spain, plants which produce polyamide 6,6 (or nylon 6,6), as well as Gorzow in Poland, which produces specialised polyamides.

Other materials produced at those three facilities include hexamethylene diamine (HDM), hexamethylenediamine adipate salt (AH-salt), nylon 6,6 base polymer, nylon 6,6 engineering plastics and nylon 6 3D printing powder.

The two companies also committed to create a joint venture joint venture in Chalampe, France, between the resulting merged entity under BASF’s control and the buyer of the stated divested production facilities. The Chalampe site produces adipic acid, an upstream product for nylon 6,6.

Moreover, the Commission wanted “long-term supply agreements” for adiponitrile (ADN), another upstream product for production of nylon 6,6, in order to meet the divested businesses raw materials requirements.

“The commitments fully remove the overlap between BASF and Solvay in the markets where the Commission had identified competition concerns,” the EU executive body said.

“In addition, there was no indication that the existing level of competition could be maintained by new entrants because of high barriers to entry in these markets. In particular, access to essential inputs [raw materials] is limited and critical to be able to compete effectively.”

The Commission had said it feared the full control by BASF of all of Solvay’s polyamide assets could have led to a reduction of the number of suitable suppliers and “likely price increases” in a number of EU nylon markets.

The EU Commissioner for competition, Margrethe Vestager, said that given nylon overreaching presence in many end markets, the remedy package allowed for the creation of another large player in the EU nylon markets and allowing for more choices for end users.

"Nylon is used in many different types of products, not only textile or carpets but also in car components, to make them lighter and more environmentally friendly. Our decision will allow for the creation of a significant European player in this market because the commitments offered by BASF and Solvay ensure that the merger will not lead to higher prices or less choice for European businesses and, ultimately, consumers," she said.

Nylon compounds are used in the automotive and electronics industries, while nylon fibres are used in particular for clothing and sportswear.

The Commission stressed how at the moment BASF and Solvay have dominant or strong market positions throughout the nylon value chain, and in particular the value chain of nylon 6.6.

A spokesperson for BASF said that “at this stage, it is too early” to comment on the integration process once the assets are acquired.

It did not respond to questions about the price tag the assets it will need divesting had fetched, nor the buyer.

The company said earlier in the day the process for those divestments had already started in the fourth quarter.

Earlier in January, news agency Reuters had reported that BASF would be looking at divesting plastics assets for €450m, including debt.

The report added that potential buyers for those assets could include South Korea’s SK Innovation, China’s KingFa, and private equity group SK Capital, owner of chemical producer Ascend.

Solvay did not immediately respond to a request for comment.

According to BASF, post-acquisition the two companies' nylon business would look as follows:

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Top picture: Solvay's Chalampe site in east France; the facility will be a joint venture between BASF and a new player, addressing anti-trust concerns
Source: Solvay

(adds divestment commitments, European Commission’s commentary from paragraph 7 onwards)