* Solvay to pay 31.60 euro per share, a 50 pct premium
* Enterprise value of 6.6 bln euro, REBITDA multiple 7.3x
* Rhodia strong in China and Brazil
* Solvay still has spare cash after drugs unit sale
* Rhodia shares up 48.5 pct, Solvay shares up 1.8 pct
(Adds company comments, new graphic link, details, shares)
By Aaron Gray-Block
AMSTERDAM, April 4 Cash-rich Belgian chemicals
group Solvay SA (SOLB.BR) is betting on emerging markets
exposure and specialty chemicals with a 3.4 billion euros ($4.8
billion) cash bid for French group Rhodia SA RHA.PA.
Monday's deal ends Solvay's year-long search for a takeover
after it sold its drugs unit to its U.S. partner Abbott
Laboratories (ABT.N) in September 2009 for 4.5 billion euros.
The offer of 31.60 euros per share for Rhodia, which has
been recommended by Rhodia's board of directors, means Solvay
will still have cash left over from its drugs unit sale.
The deal will significantly lift Solvay's exposure to
emerging markets, increasing its percentage of sales from
fast-growing economies to 40 percent. Rhodia is particularly
strong in China and Brazil and nearly 50 percent of its sales
came from high-growth regions in 2010.
It will also enable to Solvay tap into higher-margin
specialty chemicals, a fertile area for M&A in the chemicals
sector as some firms seek more profitable businesses and shift
away from traditional low-margin bulk chemicals production.
Dutch group DSM NV (DSMN.AS) bought U.S. baby food
ingredients maker Martek for $1.1 billion and DuPont & Co (DD.N)
is sealing the buy-out of Danish food ingredients and enzymes
maker Danisco A/S DCO.CO. [ID:nLDE71M050] [ID:nLDE72T0BE]
Dutch paints group AkzoNobel NV (AKZO.AS) has also been
rumoured to be a takeover target. [ID:nLDE71927T]
ING analyst Fabian Smeets said Rhodia, which makes
engineering plastics used in cars, thickeners for hair and skin
products and cellulose acetate for cigarette filters, was
probably the cheapest stock in the European chemicals sector.
"Apart from Arkema (AKE.PA), Rhodia is probably the only
value-enhancing buy the company could do," Smeets said.
Smeets said based on 2011 projections, Solvay is paying 6.3
times EV/EBITDA, or below the European chemicals median multiple
of 6.5 times. Assuming synergies, Smeets said the group trades
at 4.9 times EV/EBITDA.
A Danish newspaper had earlier reported that Solvay had been
outbid by DuPont for Danisco. That deal was agreed on a
EV/EBITDA multiple of about 10 times, a multiple that analysts
say reflects Danisco's higher-valued food-related businesses.
For a graphic on global M&A: r.reuters.com/kyb46q
For a graphic on sectors M&A: r.reuters.com/dud88r
For a Breakingviews comment: [ID:nLDE7330LD]
Solvay Chief Executive Christian Jourquin told reporters the
two groups were complementary in terms of products and markets
and the deal would reduce the cyclical nature of their business.
The deal also would reduce the exposure of Solvay, which
makes soda ash used in glass production and polyvinyl chloride
(PVC) for plastic piping, to sluggish construction markets and
see it expand in specialty chemicals.
Specialty chemicals usually offer higher margins than
commoditised bulk chemicals, but also demand higher R&D costs
and wages. Companies, however, can also more easily adjust the
capacity and costs of specialty chemicals production.
Rhodia CEO Jean-Pierre Clamadieu will become the combined
group's deputy chief executive once the offer closes and will
succeed Jourquin in 2012 upon his retirement.
Clamadieu said at a press conference in Paris he could not
exclude a counter-offer for the company, but added this was
Solvay said bolt-on deals were still possible, but added
that nothing was planned in the immediate future.
Rhodia shares jumped 48.5 percent to 31.275 euros, while
Solvay shares climbed 1.8 percent, above a 1.1 percent rise in
the STOXX Europe 600 chemicals index .SX4P.
Years of restructuring saved Rhodia from collapse after
2000, but its shares still traded at 2 euros in the first
quarter of 2009, rising to about 12 euros on Feb. 15, 2010,
which was when Solvay closed the Abbott deal.
Annual cost synergies, for example as a result of bulk
purchasing, will be about 250 million euros within three years.
Job cuts will form a small part of the savings. The acquisition
will be earnings accretive from year one.
JP Morgan Cazenove said taking into account synergies, the
deal multiple would be an attractive 5.7 times core earnings.
Solvay said a tender offer conditional on approval by EU and
U.S. anti-trust authorities will be launched in coming days.
"We don't think there will be any competition issues,"
Solvay spokesman Erik De Leye said.
Morgan Stanley (MS.N) advised Solvay on the deal and Credit
Suisse CSGN.VX advised Rhodia.
(Additional reporting by Phil Blenkinsop in Brussels and Julien
Ponthus in Paris; Editing by David Holmes and Mike Nesbit)