Belgium-based Solvay and INEOS from Switzerland jointly announced on May 7 that they have signed a Letter of Intent (LOI) to combine their European chlorvinyls activities in a proposed 50-50 joint venture.
The combination would form a polyvinyl chloride (PVC) producer ranking among the top three worldwide. It would have pro-forma net sales of 4.3 billion euros and Recurring Earnings Before Interest, Taxes, Depreciation and Amortization (REBITDA) of 257 million euros, based on 2012 figures. RusVinyl, Solvay’s Russian joint venture in chlorvinyls with Sibur, is excluded from the transaction.
The LOI provides exit mechanisms under which INEOS would acquire Solvay’s 50% interest in the joint venture for a value based on a mid-cycle REBITDA multiple of 5.5x. The exit arrangements would have to be exercised between four and six years from the joint venture’s formation, after which INEOS would be the sole owner of the business. Solvay would be entitled to receive upfront cash payments of 250 million euros upon completion of the transaction.
“This proposed partnership is an ambitious and value-creating industrial project. We want to create a world class player that will benefit from the high-quality assets of both companies. The joint venture will improve the competitiveness of its operations in a very challenging environment regarding feedstock and energy costs in Europe. We are convinced that this is the right project to secure, for the long term, the development of Solvay’s European chlorvinyls activities, of its employees and its plants,” says Jean-Pierre Clamadieu, CEO of Solvay. “Furthermore, this transaction would substantially change our portfolio of activities and allow us to accelerate Solvay’s transformation into a chemical group focused on growth and high-margin businesses.”
“This agreement will result in the creation of a truly competitive and sustainable business that will provide significant benefit to customers such as reliable access to PVC,” said Jim Ratcliffe, Chairman, INEOS AG. “The newly combined business, which will be of world scale, will be able to better respond to rapidly changing European markets and to match increasing competition from global producers.”Solvay would contribute its vinyl activities, which are part of Solvin, a joint-venture between Solvay and BASF, as well as its Chlor Chemicals business, spread across seven fully integrated production sites in Europe.
These sites include five electrolysis units converted into more energy efficient membrane technology, which supports sustainable production of PVC.Kerling, the subsidiary of INEOS and the largest PVC producer in Europe, would contribute its chlorvinyls and related businesses that include three modern and large-scale membrane electrolysis units. These assets are based on ten sites in seven European countries.
The proposed transaction is subject to the applicable information/consultation procedures with employee representatives in the countries involved. After completion of such procedures, the parties would enter into legally-binding agreements that would contain customary closing conditions, including anti-trust approval from the relevant authorities. Until completion of the transaction, the occurrence and timing of which is dependent on such approval and procedures, Solvay and INEOS will continue to run their PVC businesses separately.