Solvay and Rhodia to form European giant

Speciality chemical companies Solvay and Rhodia, have agreed to a deal that will see Solvay purchase Rhodia for 3.4 billion (?3 billion) in cash.

The move will create a European chemical giant with annual sales of 12 billion. Key products for Solvay include speciality polymers, sodium carbonate and hydrogen peroxide. Solvay employs 17,000 people, and in 2010 it made sales of 7 billion. Rhodia makes: materials from silica and rare earth elements; products for consumer markets, such as surfactants, natural polymers and acetate; engineering plastics based on polyamide; and other products. Rhodia employs 14,000 people, and it generated sales of 5.23 billion in 2010.

Solvay sold its pharma business to Abbott for $5.2 billion in 2009, and in September 2010 it said it would cut 800 jobs worldwide.

The two companies say that combining their activities will lead to annual savings of 250 million within three years. But two thirds of the money saved will come from outside the new company, and therefore they are not planning any ’major’ downsizing as a direct result of the move.

The deal follows DuPont’s $5.8 billion (?3.5 billion) deal for Danisco and Clariant’s 2 billion deal for S?d-Chemie.

According to Constantine Biller, director and senior analyst for chemicals at UK corporate finance advisory firm Clearwater, this marks the end of the period of ’bolt on’ acquisitions. ’Groups are now looking at diversifying their product areas and geographic reach,’ he says. ’Rhodia takes Solvay into more growth markets.’ When viewed together, the two companies currently generate 40 per cent of sales in emerging markets.

Biller says there are lots of companies with ’reinforced’ balance sheets looking for similar acquisitions. Companies in Europe and North America are motivated by growing demand in the so-called N11, the ’next 11’ growth economies, as well as the bric countries (Brazil, Russia, India and China), he adds.

Andrew Turley