European Commission greenlights INEOS/Solvay PVC joint venture

LONDON (ICIS)–The European Commission on Thursday agreed to a joint venture between Switzerland-headquartered INEOS and Belgium’s Solvay, contingent on certain divestments, which will see the creation of Europe’s largest polyvinyl chloride (PVC) producer.

The two companies have received approval to fold their chlorvinyls assets into a 50:50 joint venture to respond to challenging European market conditions and intensifying international competition.

Representing the combination of the top two players in the European PVC market, the Commission had expressed concerns about the impact of the joint venture on sector plurality, but the latest portfolio of divestments the companies have offered up presents a solution to the issue, according to competition regulators.

The companies offered an augmented asset disposal plan in March, comprising the divestment of S-PVC plants in Beek, the Netherlands, Mazingarbe, France and Wilhelmshaven, Germany, along with upstream chlorine and ethylenedichloride (EDC) assets in Tessenderlo, Belgium, and Runcorn, UK.

INEOS had held sufficient power in the northwest European suspension PVC (S-PVC) market to manipulate prices to an extent, the Commission said, while the merged entities as they currently stand would control 60% of the Benelux bleach market, with its only significant competitor being the Netherlands’ AkzoNobel.

“The Commission had concerns that the transaction, as originally notified, would have enabled the merged entity to raise prices for S-PVC in North West Europe and for sodium hypochlorite [bleach] in the Benelux, since it combined the two largest suppliers in these markets. The commitments offered address these concerns,” the Commission’s competition authority said.

The combined INEOS/Solvay chlorvinyls producer and the purchaser of the divested assets will also enter into a joint venture agreement for the production of chlorine at Runcorn, the Commission said. INEOS and Solvay have agreed not to close the merger until a buyer has been found for the assets and a binding sales agreement signed.

A purchaser of the divested assets would be taking possession of a fully-integrated S-PVC production operation, according to European regulators.

“The divestment will provide the purchaser with a fully integrated self-standing S-PVC business,” the Commission said, adding that a set of purchaser criteria will be set out to ensure the operations go to a player with the capacity to run the operations as a competitive force.

“PVC is an important raw material used in the construction sector and in many other industries. The proposed commitments will ensure that the transaction will not result in higher prices to the detriment of businesses and consumers in Europe,” said Commission vice president in charge of competition policy Joaquin Almunia.

Announced in May 2013, the letter of intent between the prospective joint venture partners includes an exit clause where INEOS would acquire Solvay’s 50% stake in the venture for five and a half times its mid-cycle recurring earnings before interest, taxes, depreciation and amortisation (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.

Original estimates of the scope of the merged entity – which do not account for the assets to be divested for competition authority compliance purposes – included 5,650 employees, and pools the company’s operations across the chlorvinyls chain, including PVC, chlorine, and caustic soda.

Based on full-year 2012 figures, the entity would have combined net sales of €4.3bn and REBITDA of €257m.