Solvay bets on emerging markets in $4.8 billion Rhodia buy

By Aaron Gray-Block

AMSTERDAM (Reuters) - Cash-rich Belgian chemicals group Solvay SA is betting on emerging markets with a 3.4 billion euro ($4.8 billion) cash bid for French rival Rhodia SA , ending a year-long hunt for acquisitions.

Monday's deal ends Solvay's year-long search for a takeover after the company sold its drugs unit to its U.S. partner Laboratories in September 2009 for 4.5 billion euros.

The offer of 31.60 euros per share for Rhodia has been recommended by Rhodia's board of directors and still leaves Solvay with a 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.

The chemicals sector is proving fertile ground for M&A, as some firms seek higher-margin businesses and shift away from the traditional low-margin bulk chemicals production.

Dutch group Royal DSM NV bought U.S. baby food ingredients maker Martek Biosciences for $1.1 billion and DuPont & Co is sealing the buy-out of Danish food ingredients and enzymes maker Danisco A/S.

Dutch paints group Akzo Nobel NV has also been rumored to be a takeover target.

ING analyst Fabian Smeets said Rhodia was probably the cheapest stock in the European chemicals sector. "Apart from Arkema, Rhodia is probably the only value-enhancing buy the company could do."

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.

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Solvay Chief Executive Christian Jourquin told reporters the two groups were complementary in terms of products and markets and that the combination would greatly reduce the cyclical nature of their business.

The deal also would reduce the exposure of Solvay, which makes soda ash used in glass production, to sluggish construction markets.

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.

Rhodia shares jumped 49.3 percent to 31.44 euros, while Solvay shares climbed 3.5 percent to outperform the STOXX Europe 600 chemicals index which was up 1.3 percent.

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.

JP Morgan Cazenove said the deal was attractive and in line with Solvay's acquisition strategy in terms of offering emerging markets exposure, a greener footprint and reduced cyclicality.

Assuming synergies of 250 million euros, the deal multiple would be an attractive 5.7 times core earnings, it said.

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.

Solvay is the world's leading maker of soda ash, a key raw material for glass, and is also one of the world's leading producers of polyvinyl chloride (PVC), used in construction.

Rhodia is a world leader in surfactants used in cosmetics and detergents and in phosphorous chemistry, used in water treatment, fire protection and oil field drilling. It is also active in hair and skin products and the world number two in polyamides, used for engineering plastics.

The acquisition will be earnings accretive from year one.

Morgan Stanley advised Solvay on the deal and Credit Suisse

advised Rhodia.

(Additional reporting by Phil Blenkinsop in Brussels; Editing by Sara Webb and David Holmes)

($1=.7080 Euro)